UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA )United States Department of Justice )950 Pennsylvania Avenue, N.W. )Washington, D.C. 20530-0001, )

)Plaintiff, )

) COMPLAINT FOR DAMAGESvs. ) AND INJUNCTIVE AND

) DECLARATORY RELIEFPHILIP MORRIS, INC. )120 Park Avenue )New York, New York 10017; )

)R.J. REYNOLDS TOBACCO COMPANY )401 North Main Street )Winston-Salem, North Carolina 27102; )

) Civ. No. BROWN & WILLIAMSON TOBACCO CORPORATION )1500 Brown & Williamson Tower )Louisville, Kentucky 40202, ) directly and as successor by merger to )

AMERICAN TOBACCO COMPANY )1500 Brown & Williamson Tower )Louisville, Kentucky 40202, )

)LORILLARD TOBACCO COMPANY )714 Green Valley Road )Greensboro, North Carolina 27408; )

)THE LIGGETT GROUP, INC. ) PLAINTIFF DEMANDS A300 North Duke Street ) TRIAL BY JURYDurham, North Carolina 27702, )

directly and as parent to )LIGGETT & MYERS, INC. )810 Craghead Street )Danville, Virginia 24541; )

)AMERICAN TOBACCO COMPANY )1500 Brown & Williamson Tower )Louisville, Kentucky 40202, )

directly and as successor to )the tobacco interests of )AMERICAN BRANDS, INC. )1700 East Putnam Avenue )Old Greenwich, Connecticut 06870; )

)PHILIP MORRIS COMPANIES, INC. )120 Park Avenue )New York, New York 10017; )

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BRITISH AMERICAN TOBACCO, P.L.C. )Windsor House )50 Victoria Street )London SW1H ONL, England, )

directly and as successor to )B.A.T. INDUSTRIES P.L.C. )Windsor House )50 Victoria Street )London SW1H ONL, England; )

)BRITISH AMERICAN TOBACCO )(INVESTMENTS) LTD. )Globe House )1 Water Street )London WC2R 3LA, England, )

directly and as successor to )BRITISH-AMERICAN TOBACCO )COMPANY, LTD. )Globe House )4 Temple Place )London WC2R 2PG, England; )

)THE COUNCIL FOR TOBACCO )RESEARCH--U.S.A., INC. )900 Third Avenue )New York, New York 10022; and )

)THE TOBACCO INSTITUTE, INC. )1875 I Street N.W., Suite 800 )Washington, D.C. 20006, )

)Defendants. )

__________________________________________________)

COMPLAINT

The United States of America, plaintiff herein, by and through its undersigned attorneys,

for its complaint herein, alleges as follows:

INTRODUCTION

This is an action to recover health care costs paid for and furnished, and to be paid

for and furnished, by the federal government for lung cancer, heart disease, emphysema, and other

tobacco-related illnesses caused by the fraudulent and tortious conduct of defendants, and to

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restrain defendants and their co-conspirators from engaging in fraud and other unlawful conduct in

the future, and to compel defendants to disgorge the proceeds of their unlawful conduct.

This action is brought pursuant to the Medical Care Recovery Act, 42 U.S.C. §§

2651, et seq. (Count One), and the Medicare Secondary Payer provisions of Subchapter 18 of the

Social Security Act, 42 U.S.C. § 1395y(b)(2)(B)(ii) &(iii) (Count Two), and the civil provisions of

Chapter 96 of Title 18, United States Code, codified at 18 U.S.C. §§ 1961 through 1968, entitled

Racketeer Influenced and Corrupt Organizations ("RICO"), that authorize the United States to

seek a judicial order preventing and restraining certain unlawful conduct (Counts Three and Four).

Defendants, who manufacture and sell almost all of the cigarettes purchased in this

country, and their co-conspirators have for many years sought to deceive the American public

about the health effects of smoking. Defendants have repeatedly and consistently denied that

smoking cigarettes causes disease, even though they have known since 1953, at the latest, that

smoking increases the risk of disease and death. Defendants have repeatedly and consistently

denied that cigarettes are addictive even though they have long understood and intentionally

exploited the addictive properties of nicotine. Defendants have repeatedly and consistently stated

that they do not market cigarettes to children while using advertising and marketing techniques to

make their products attractive to children. Even though they have long understood the hazards

caused by smoking and could have developed and marketed less hazardous cigarette products,

defendants chose and conspired not to do so. Instead, they have knowingly marketed cigarettes --

called "low tar/low nicotine" cigarettes -- that consumers believed to be less hazardous even

though consumers actually receive similar amounts of tar and nicotine as they receive from other

cigarettes; and therefore these cigarettes are in fact not less hazardous than other cigarettes.

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In all relevant respects, defendants acted in concert with each other in order to

further their fraudulent scheme. Beginning not later than 1953, defendants, their various agents

and employees, and their co-conspirators, formed an "enterprise" ("the Enterprise") as that term is

defined in 18 U.S.C. § 1961(4). That Enterprise has functioned as an organized association-in-fact

for more than 45 years to achieve, through illegal means, the shared goals of maximizing their

profits and avoiding the consequences of their actions. Each defendant has participated in the

operation and management of the Enterprise, and has committed numerous acts to maintain and

expand the Enterprise.

In order to avoid discovery of their fraudulent conduct and the possibility that they

might be called to account for their conduct, defendants engaged in a widespread scheme to

frustrate public scrutiny by making false and deceptive statements and by concealing documents

and research that they knew would have exposed their public campaign of deceit. This scheme

included making false and deceptive statements to the public and in congressional, judicial, and

federal agency proceedings.

Defendants' tortious and unlawful course of conduct has caused consumers of

defendants' products to suffer dangerous diseases and injuries. As a consequence of defendants'

tortious and unlawful conduct, the Federal Government spends more than $20 billion annually for

the treatment of injuries and diseases caused by defendants' products. The effect of defendants'

fraudulent scheme and wrongful conduct continues to this day; defendants are continuing to

prosper and profit from their unlawful and tortious conduct; and, unless restrained by this Court,

defendants are likely to continue their unlawful activities into the future.

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I. JURISDICTION

Jurisdiction in this action is predicated upon 28 U.S.C. §§ 1331, 1345, and 2201,

and 18 U.S.C. §§ 1964(a) and (b).

II. VENUE

Venue for this action is predicated upon 18 U.S.C. § 1965 and 28 U.S.C. §§

1391(b) and (c). The United States invokes the expanded service of process provisions of 18

U.S.C. § 1965(b). Each defendant cigarette company, or its predecessor or successor, has

marketed cigarettes for sale in the District of Columbia and elsewhere from at least 1953 to the

present. In addition, the Departments of Health and Human Services and Veterans Affairs and the

Office of Personnel Management, federal agencies with their headquarters in Washington, D.C.,

among others, have paid for and provided health care to millions of smokers whose smoking

related injuries were caused by defendants.

III. THE PARTIES

Plaintiff UNITED STATES OF AMERICA (the "United States"), is a sovereign

and body politic.

A. Cigarette Company Defendants

Defendant PHILIP MORRIS, INC. ("Philip Morris") is a Virginia corporation with

its principal place of business at 120 Park Avenue, New York, New York. Philip Morris is a

subsidiary of PHILIP MORRIS COMPANIES, INC. At relevant times, Philip Morris has

manufactured, advertised, and sold cigarettes, including Alpine, Basic, Dunhill, Benson & Hedges,

Cambridge, English Ovals, Galaxy, Marlboro, Merit, Parliament, Philip Morris, Players, Saratoga,

and Virginia Slims brand cigarettes throughout the United States, including in the District of

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Columbia. In addition, on or about January 12, 1999, Philip Morris entered into an agreement

with defendant LIGGETT GROUP, INC. to purchase certain brands of cigarettes previously

manufactured by Liggett, including Lark, Chesterfield, and L&M, which Philip Morris also has

sold throughout the United States and in the District of Columbia. At times pertinent to this

Complaint, Philip Morris, individually and through its agents, alter egos, subsidiaries, divisions, or

parent companies, materially participated in the Enterprise, and materially participated, conspired,

assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the

unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate

commerce in the United States, including the District of Columbia.

Defendant R.J. REYNOLDS TOBACCO COMPANY ("Reynolds" or "RJR") is a

New Jersey corporation with its principal place of business at 401 North Main Street, Winston-

Salem, North Carolina. At relevant times, Reynolds has manufactured, advertised, and sold

cigarettes, including Best Value, Bright Rite, Camel, Century, Doral, Magna, Monarch, More,

Now, Salem, Sterling, Vantage, and Winston brand cigarettes throughout the United States,

including in the District of Columbia. At times pertinent to this Complaint, Reynolds, individually

and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially

participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and

otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and

fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United

States, including the District of Columbia.

Defendant BROWN & WILLIAMSON TOBACCO CORPORATION ("Brown &

Williamson") is a Delaware corporation with its principal place of business at 1500 Brown &

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Williamson Tower, Louisville, Kentucky. Brown & Williamson is a wholly owned subsidiary,

directly or indirectly, of BATUS Holdings, Inc., a Delaware corporation, and its ultimate parent

company is defendant BRITISH AMERICAN TOBACCO P.L.C. At relevant times, Brown &

Williamson has manufactured, advertised, and sold cigarettes, including Barclay, Bel Air, Capri, Eli

Cutter, GPC, Kool, Laredo, Prime, Private Stock, Raleigh, Richland, Summit, Tall, Tareyton, and

Viceroy brand cigarettes throughout the United States, including in the District of Columbia. As a

result of its acquisition of defendant AMERICAN TOBACCO COMPANY in 1994 (either directly

or through BAT Industries, p.l.c., the predecessor to BRITISH AMERICAN TOBACCO P.L.C.),

Brown & Williamson has succeeded to the liabilities of defendant American either by operation of

law, or as matter of fact. At times pertinent to this Complaint, Brown & Williamson, individually

and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially

participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and

otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and

fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United

States, including the District of Columbia.

Defendant LORILLARD TOBACCO COMPANY, INC. ("Lorillard") is a

Delaware corporation with its principal place of business at 1 Park Avenue, New York, New

York. Lorillard is a subsidiary of Loews Corp., a Delaware corporation. At relevant times,

Lorillard has manufactured, advertised, and sold cigarettes, including Golden Lights, Harley-

Davidson, Heritage, Kent, Maverick, Max, Newport, Newport Red, Old Gold, Satin, Spring,

Spring Lemon Lights, Style, Triumph, and True brand cigarettes throughout the United States,

including in the District of Columbia. At times pertinent to this Complaint, Lorillard, individually

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and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially

participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and

otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and

fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United

States, including the District of Columbia.

Defendant LIGGETT GROUP, INC. ("Liggett") is a Delaware corporation with its

principal place of business at 700 West Main Street, Durham, North Carolina. Liggett is the

successor to the tobacco interests of Liggett & Myers, Inc., and Liggett & Myers Tobacco Co.

Liggett is a subsidiary of the Brooke Group, a Delaware corporation. At relevant times, Liggett

has manufactured, advertised, and sold cigarettes, including Chesterfield, Decade, Dorado, Eve,

Generic, Lark, L&M, Pyramid, and Stride brand cigarettes throughout the United States, including

in the District of Columbia. At times pertinent to this Complaint, Liggett, individually and through

its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the

Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and

abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct

alleged herein, and has affected foreign and interstate commerce in the United States, including the

District of Columbia.

Defendant the AMERICAN TOBACCO COMPANY ("American") is or was a

Delaware corporation with its principal place of business at 1500 Brown Williamson Tower,

Louisville, Kentucky. At relevant times, American manufactured, marketed, and sold American,

Bull Durham, Carlton, Iceberg, Lucky Strike, Malibu, Misty, Montclair, Newport, Pall Mall, Silk

Cut, Silva Thins, Sobrania, and Tareyton cigarettes throughout the United States, including in the

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District of Columbia. American is successor to the tobacco interests of American Brands, Inc. In

1994, American was purchased by and merged into Brown & Williamson, which has succeeded to

the liabilities of American. At times pertinent to this Complaint, American, individually and

through its agents, alter egos, subsidiaries, parent companies and divisions, materially participated

in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided

and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent

conduct alleged herein, and has affected foreign and interstate commerce in the United States,

including the District of Columbia.

Defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,

LORILLARD, LIGGETT, and AMERICAN are referred to herein collectively as the "Cigarette

Companies," each of which marketed cigarettes for sale in the District of Columbia and elsewhere.

B. The Parent Company Defendants

Defendant PHILIP MORRIS COMPANIES, INC. ("Philip Morris Companies"), is

a Virginia corporation whose principal place of business is located at 120 Park Avenue, New

York, New York 10017. Philip Morris Companies is the parent corporation of Philip Morris and

Philip Morris International, Inc., and has participated in the manufacture and distribution of

cigarettes and tobacco products both individually and through its agents defendant Philip Morris

and Philip Morris International, Inc. In acting as alleged herein, Philip Morris and Philip Morris

International, Inc., have acted within the course and scope of their agency and employment, and

with the knowledge, consent, permission, and authorization of Philip Morris Companies. Actions

of Philip Morris were ratified and approved by the officers and managing agents of Philip Morris

Companies. At times relevant herein, Philip Morris Companies has participated substantially in the

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management and control of Philip Morris. Through Philip Morris, Philip Morris Companies has

placed cigarettes into the stream of commerce with the expectation that substantial sales of

cigarettes would be made in the United States, including in the District of Columbia, and

elsewhere. At times pertinent to this Complaint, Philip Morris Companies, individually and

through its agents, alter egos, subsidiaries, or divisions, materially participated in the Enterprise,

and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one

or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein,

and has affected foreign and interstate commerce in the United States, including the District of

Columbia.

Defendant BRITISH AMERICAN TOBACCO, P.L.C. (“BAT p.l.c.”) is a British

corporation with its principal place of business at Globe House, 4 Temple Place, London WC2R

2PG, England. BAT p.l.c. is sued directly and as successor to B.A.T. INDUSTRIES, P.L.C.

("B.A.T. Industries"). (This Complaint will refer to this defendant alternatively as “BAT p.l.c” and

"BAT Industries"). Defendant Brown & Williamson is the agent of defendant BAT p.l.c. In acting

as alleged herein, Brown & Williamson has acted within the course and scope of its agency and

employment, and with the consent, permission, and authorization of BAT p.l.c. Actions of Brown

& Williamson were ratified and approved by the officers and managing agents of BAT p.l.c.

Through a succession of intermediary corporations and holding companies, BAT p.l.c. is the sole

shareholder of Brown & Williamson. At times relevant herein, BAT p.l.c. has participated

substantially in the management and control of Brown & Williamson. Through Brown &

Williamson, BAT p.l.c. has placed cigarettes into the stream of commerce with the expectation that

substantial sales of cigarettes would be made in the United States, including in the District of

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Columbia. At times pertinent to this Complaint, BAT p.l.c., individually and through its agents,

alter egos, subsidiaries, or divisions, materially participated in the Enterprise, and materially

participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the

other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has

affected foreign and interstate commerce in the United States, including the District of Columbia.

Defendant BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD. ("BAT

Investments") is a British corporation whose registered office is at Millbank, Knowle Green,

Staines, Middlesex, TW18 1DY, England. BAT Investments is sued directly and as successor to

BRITISH AMERICAN TOBACCO COMPANY, LTD. ("BAT Co."). (This Complaint will refer

to this defendant generally as “BAT Co.”). At relevant times pertinent to this Complaint, BAT Co.

was a parent corporation of defendant Brown & Williamson and BATUS Holdings. In acting as

alleged herein, Brown & Williamson has acted within the course and scope of its agency and

employment, and with the consent, permission, and authorization of BAT Co. Actions of Brown &

Williamson were ratified and approved by the officers and managing agents of BAT Co. At times

relevant herein, BAT Co. has participated substantially in the management and control of Brown &

Williamson. At times pertinent to this Complaint, BAT Co., individually and through its agents,

alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and

materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or

more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and

has affected foreign and interstate commerce in the United States, including the District of

Columbia.

Defendants PHILIP MORRIS COMPANIES, BAT P.L.C., and BAT

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INVESTMENTS are referred to herein collectively as the "Parent Companies.''

C. The Industry "Research," Public Relations, and Lobbying Defendants

Defendant COUNCIL FOR TOBACCO RESEARCH -- U.S.A., Inc. ("CTR"), is or

was a New York non-profit corporation with its principal place of business at 900 Third Avenue,

New York, New York. CTR is the successor in interest to the Tobacco Industry Research

Committee ("TIRC"). TIRC and CTR were not primarily "research" organizations but they were

established by the Cigarette Companies to carry out their fraudulent course of conduct beginning in

January 1954. At all relevant times, TIRC and CTR operated as public relations and lobbying arms

of the Cigarette Companies and as agents and employees of the Cigarette Companies. They also

acted as facilitating agencies and co-conspirators in furtherance of the Cigarette Companies'

combination and conspiracy as described in this Complaint. In acting as alleged herein, TIRC and

CTR acted within the course and scope of their agency and employment, and with the knowledge,

consent, permission, and authorization of the Cigarette Companies. All actions of TIRC and CTR

were ratified and approved by the officers and managing agents of each of the Cigarette Companies.

At times pertinent to this Complaint, TIRC and CTR, individually and through their agents,

materially participated in the Enterprise, and materially participated, conspired, assisted,

encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful,

misleading, and fraudulent conduct alleged herein, and have affected foreign and interstate

commerce in the United States, including the District of Columbia.

Defendant THE TOBACCO INSTITUTE, INC. ("Tobacco Institute" or "TI") is or

was a New York non-profit corporation with its principal place of business at 1875 I Street N.W.,

Suite 800, Washington, D.C. At all relevant times, the Tobacco Institute has operated as a public

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relations arm of the Cigarette Companies, and as an agent and employee of the Cigarette

Companies. It has also acted as a participant and facilitating agent and co-conspirator in

furtherance of the conspiracy of the Cigarette Companies as described in this Complaint. In acting

as alleged herein, the Tobacco Institute has acted within the course and scope of its agency and

employment, and with the knowledge, consent, permission, and authorization of each of the

Cigarette Companies. All actions of the Tobacco Institute were ratified and approved by the

officers and managing agents of the Cigarette Companies. At times pertinent to this Complaint, the

Tobacco Institute, individually and through its agents, materially participated in the Enterprise, and

materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or

more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and

has affected foreign and interstate commerce in the United States, including the District of

Columbia.

At all relevant times, each defendant was a "person" within the meaning of 18 U.S.C.

§1961(3), because each defendant was "capable of holding a legal or beneficial interest in property."

The Cigarette Companies, the Parent Companies, CTR, and the Tobacco Institute are referred to

herein collectively as "defendants."

IV. THE FACTS

A. The Impact of Cigarette Smoking on the American Public

Cigarette smoking is the single largest preventable cause of premature death in the

United States. Each year, millions of people suffer from smoking-related diseases, which often

require a long-term course of medical and surgical treatment. Each year more than 400,000

Americans die from cigarette smoking. Nearly one in every five deaths in the United States is

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smoking related.

Each year, as a result of the diseases, illness, or injuries caused by cigarettes, the

United States spends more than $20 billion under a variety of programs to pay for or furnish

medical care to smokers.

Cigarette smoking causes lung and other types of cancers, emphysema and other

chronic lung diseases, heart attacks, strokes, and a variety of other diseases. Cigarette smoking by

pregnant women is also a leading cause of low birth weight infants.

Cigarettes contain nicotine, which is an addictive drug. The addictiveness of

cigarette smoking significantly increases the adverse health consequences of cigarette smoking.

Although it is illegal to sell cigarettes to children, the vast majority of adults who

smoke began smoking before they were 18. Children are particularly susceptible to cigarette

advertising, especially advertising that presents smoking as a rite of passage into adulthood. When

they first begin to smoke, children do not believe that they will have difficulty in quitting, but

because of the addictive nature of nicotine, many are unable to quit once they have started.

More than one million children under age 18 begin smoking each year in America.

Of these children, most continue as adult smokers and will suffer from some smoking-related illness

and diminished health, which will directly and indirectly have an enormous adverse effect on public

welfare and the public fisc; and approximately one in three of these children who become regular

smokers will die of a smoking-related disease.

B. The Formation of the Enterprise and the Nature of the Conspiracy

In the 1940's and early 1950's, scientific researchers published findings that indicated

a relationship between cigarette smoking and diseases, including lung cancer.

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Senior Cigarette Company executives and researchers closely monitored such

research and knew that if the public came to understand that cigarette smoking causes cancer and

other diseases, the Cigarette Companies' profits would decline and the industry would face the

prospect of civil liability and government regulation. In response to the published research linking

cigarettes and disease, in December 1953, Paul Hahn, President of American Tobacco Company,

sent a telegram to the other Cigarette Company presidents, suggesting a meeting to formulate "an

industry response" to the studies.

As a direct result of Mr. Hahn's telegram, on December 15, 1953, the chief

executives of American, Brown & Williamson, Lorillard, Philip Morris, and Reynolds met at the

Plaza Hotel in New York City. At that meeting, these chief executives agreed that the published

studies were "extremely serious" and "worthy of drastic action." At the meeting, the chief

executives determined to respond to this serious public health issue with a concerted public

relations campaign intended to preserve their profits.

The decisions made by these chief executives at the Plaza Hotel meeting have shaped

the actions of the Cigarette Companies, including companies not in attendance at the meeting, to

this day. The chief executives at the Plaza Hotel agreed that the strategy they were implementing

was a "long-term one" that required defendants to act in concert with each other on the current

health controversy, as well as on issues that would face them in the future. This Enterprise and

conspiracy still continues today.

The fundamental goal of the Enterprise and conspiracy was to preserve and expand

the market for cigarettes and to maximize the Cigarette Companies' profits. To achieve this goal,

defendants' strategy was to respond to scientific evidence of the adverse health consequences of

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cigarette smoking with fraud and deception. Rather than provide full disclosure to the public and in

congressional, federal agency, and judicial proceedings about what they knew or learned about the

dangers of cigarette smoking, defendants and their agents determined, in furtherance of this

Enterprise and conspiracy, to deny that smoking caused disease and to maintain that whether

smoking caused disease was an "open question," despite having actual knowledge that smoking did

cause disease.

Defendants sought to ensure that no company -- in the United States or overseas -- -

broke ranks from defendants' public posture, which was based on falsehood and deception. If any

Company admitted that smoking was hazardous, that nicotine was addictive, that the delivery of

nicotine was manipulated by the Cigarette Companies, that defendants' research commitment was a

sham, or that the Cigarette Companies marketed to children, the conspiracy would be endangered.

To further and protect the Enterprise and conspiracy and their profits, defendants:

C made false and misleading statements to the public through press releases,

advertising, and public statements, such as before Congress, that were intended to be

heard by the consuming public.

C adhered to their common scheme of deception and falsehood in lawsuits, including,

among other things, destroying and concealing documents.

Throughout the course of the Enterprise and conspiracy and to the present day,

defendants have engaged in these acts knowingly and intentionally and with a common purpose.

Their own documents -- secreted in internal files and revealed only in recent years despite

defendants' involvement in continuous litigation about their products for more than 45 years --

demonstrate that defendants:

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C sought to create false doubt about the health effects of smoking because they knew

that such doubt would influence consumers to begin or to continue smoking;

C falsely denied that nicotine was addictive and controlled the nicotine delivery of

cigarettes so that they could addict new users and make it more difficult for addicted

cigarette smokers to quit;

C suppressed research, destroyed documents, and took steps to prevent discovery of

such documents;

C aggressively targeted children as new smokers because children fail to appreciate the

hazards of smoking and the addictiveness of nicotine and are more easily induced to

start an addiction that would lead to a lifetime of cigarette purchases; and

C knew that use of their product was unreasonably and unnecessarily dangerous to the

lifelong customers that they sought to addict.

C. False Statements About Smoking and Disease

Consistent with the recommendations made in connection with the December 1953

meeting at the Plaza Hotel, defendants formed the TIRC and, on January 4, 1954, caused to be

published a full-page statement to the American public called "A Frank Statement to Cigarette

Smokers" in 448 newspapers in the United States. The "Frank Statement" explained that:

Recent reports on experiments with mice have given wide publicity toa theory that cigarette smoking is in some way linked with lungcancer in human beings.

Although conducted by doctors of professional standing, theseexperiments are not regarded as conclusive in the field of cancerresearch. However, we do not believe results are inconclusive, shouldbe disregarded or lightly dismissed. At the same time, we feel it is inthe public interest to call attention to the fact that eminent doctors

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and research scientists have publicly questioned the claimedsignificance of these experiments.

Distinguished authorities point out:

That medical research of recent years indicates many possiblecauses of lung cancer.

That there is no agreement among the authorities regarding what thecause is.

That there is no proof that cigarette smoking is one of thecauses.

That statistics purporting to link cigarette smoking with thedisease could apply with equal force to any one of many otheraspects of modern life. Indeed the validity of the statisticsthemselves is questioned by numerous scientists.

We accept an interest in people's health as a basic responsibility,paramount to every other consideration in our business.

We believe the products we make are not injurious to health.

We always have and always will cooperate closely with those whosetask it is to safeguard the public health.

For more than 300 years tobacco has given solace, relaxation, andenjoyment to mankind. At one time or another during those yearscritics have held it responsible for practically every disease of thehuman body. One by one these charges have been abandoned for lackof evidence.

Regardless of the record of the past, the fact that cigarette smokingtoday should even be suspected as a cause of a serious disease is amatter of deep concern to us.

Many people have asked us what we are doing to meet the public'sconcern aroused by the recent reports. Here is the answer:

We are pledging aid and assistance to the research effort into allphases of tobacco use and health. This joint financial aid will ofcourse be in addition to what is already being contributed by

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individual companies.

For this purpose we are establishing a joint industry group consistinginitially of the undersigned. This group will be known as TOBACCOINDUSTRY RESEARCH COMMITTEE.

In charge of the research activities of the Committee will be ascientist of unimpeachable integrity and national repute. In additionthere will be an Advisory Board of scientists disinterested in thecigarette industry. A group of distinguished men from medicine,science, and education will be invited to serve on this Board. Thesescientists will advise the Committee on its research activities.

This statement is being issued because we believe the people areentitled to know where we stand on this matter and what we intendto do about it.

Before the Frank Statement's claim that "there is no proof that cigarette smoking is

one of the causes" of lung cancer, defendants knew of the published literature on smoking and

health and researchers employed by the Cigarette Companies had reported the relationship between

smoking and disease. Moreover, although the Cigarette Companies refrained from doing much of

the basic biological research related to the effects of their products, by January, 1954, the

Companies had identified the presence of carcinogenic substances in tobacco smoke. Thus,

defendants were well aware of the health hazards posed by smoking.

Despite their knowledge, which only increased in the ensuing years, at no time did

defendants disclose to the public that smoking caused disease or make public their own analyses

which confirmed the published literature. Instead, over the last forty-five years, defendants have

made false and misleading statements to persuade the American public that there was an "open

question" as to whether smoking caused disease. In every available regulatory, judicial, and

congressional proceeding, as well as in every public forum, including through press releases and

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advertisements, defendants denied that smoking caused disease or claimed that there was

insufficient proof that smoking caused disease.

The Cigarette Companies went so far as to claim that they would cease selling

tobacco if they determined that smoking was harmful or would change the product in order to make

certain that it was no longer harmful. For example,

C George Weissman, Vice-President of Philip Morris, told the Pioneer Press on

March 31, 1954, that the cigarette industry would "stop business tomorrow"

if it believed smoking was harmful.

C Bowman Gray, the head of RJR, testified before Congress in June of 1964,

that "the tobacco industry is profoundly conscious of the gravity of questions

concerning smoking and health." *** "If it is proven that cigarettes are

harmful, we want to do something about it regardless of what somebody else

tells us to do. And we would do our level best. This is just being human."

Even those companies that were not involved in the issuance of the Frank Statement

joined, and committed acts in furtherance of, the Enterprise and conspiracy. Defendant Liggett,

which joined TIRC/CTR in 1964, maintained the same false and misleading public positions as the

other Cigarette Companies until 1997, when Liggett admitted that smoking is harmful, nicotine is

addictive, and that the Cigarette Companies have marketed to children. The Parent Company

defendants also acted in furtherance of the Enterprise and conspiracy by committing acts as

described in the Appendix to this Complaint (which Appendix is essential to determination of this

action, see LCvR 5.1(g)) and by using their corporate families, particularly overseas, to keep

documents and research out of reach of courts and others in the United States. For example, BAT

21

p.l.c., by itself or through its agents, subsidiaries, or co-conspirators, has conducted significant

research for Brown & Williamson on the topics of smoking, disease, and addiction. Brown &

Williamson also sent to England research conducted in the United States on the topics of smoking,

disease and addiction in order to remove sensitive and inculpatory documents from United States

jurisdiction, and such documents were subject to the control of BAT p.l.c.

In addition to the false statements made by the Cigarette Companies themselves and

in furtherance of their scheme to defraud, in 1958 defendants created the Tobacco Institute, a public

relations organization whose function was to make certain that defendants' false and misleading

positions on issues related to, among other things, the connection between smoking and disease,

were kept constantly before the public, doctors, the press, and the government. At all times,

defendants controlled the Tobacco Institute, including its public statements made on behalf of

defendants. Examples of the Tobacco Institute's false and misleading statements are identified in

the attached Appendix.

In contrast to defendants, who long knew and understood the adverse health effects

of cigarette smoking, many members of the public did not fully appreciate the risk to their health

posed by cigarettes. At all times, defendants made such false and misleading statements with the

express purpose of deceiving the public and inducing smokers and non-smokers to minimize the

health risks and continue or start smoking. Defendants also had full knowledge that, as their fraud

succeeded, more Americans would suffer from tobacco-related disease. Because they failed to

warn consumers and lied about the health effects of smoking, many Americans, including millions of

children, became addicted to cigarettes, and many people who were already smoking had more

difficulty quitting, with resulting damage to their health.

22

D. The Myth of Independent Research

1. The "Gentleman's Agreement"

As a means to further the aims of the Enterprise and conspiracy and as an adjunct to

their claims that there was an open question as to whether smoking causes disease, defendants -- in

the "Frank Statement" and repeatedly over the 45 years since then -- undertook an obligation to

protect the public health by conducting and disclosing unbiased and authenticated research on the

health risks of cigarette smoking. This promise was false when made, has been repeatedly

reaffirmed throughout the years, and has never been fulfilled.

Contrary to their repeated promises, the Cigarette Companies had a "gentleman's

agreement" -- so called by defendants themselves -- not to perform or commission internal research

designed to investigate the relationship between smoking and health. They did not routinely employ

or support scientists to conduct such research; and, in the rare instances that the companies did

conduct such research internally, they did so in secret and suppressed the results, in some cases by

destroying documents and in other cases by taking other steps to shield documents and materials

from discovery.

Two components to this "gentleman's agreement" were: (1) any company

discovering an innovation permitting the manufacture of an essentially "safe" cigarette would share

the discovery with others in the industry; and (2) no domestic company would perform in-house

biomedical research on animals.

Although they recognized that research and testing were essential to evaluating the

health risk posed by their products, defendants, pursuant to the "gentleman's agreement," generally

did not perform biological research on smoking and health. In a secret internal communication in

23

1964, Philip Morris Research and Development Vice President Helmut Wakeham acknowledged

the legal jeopardy inherent in defendants' joint agreement, when he (unsuccessfully) recommended

that "[t]he industry should abandon its past reticence with respect to medical research. Indeed,

failure to do such research could give rise to negligence charges." Despite Mr. Wakeham's

warning, defendants persisted in their agreement.

By the late 1960's, individual companies were performing limited biological research

in violation of the "gentleman's agreement." Nonetheless, the fundamental understanding and

agreement remained intact: information and activities that would tend to establish the harmfulness

of cigarettes would be restrained, suppressed, and concealed. This included restraining, concealing,

and suppressing research on the adverse health effects of smoking, including the addictive qualities

of cigarettes.

The biological research that the Cigarette Companies did perform was closely

controlled to ensure that, if it resulted in additional evidence that smoking causes disease, it would

not become public or subject to discovery in court proceedings. This control included performing

much of the research outside the United States in order to keep documents and witnesses hidden

and out of the reach of State and Federal courts, and by taking other steps to shield documents and

materials from discovery.

Philip Morris, for example, conducted in-house research in Europe in order to avoid

disclosure of unfavorable results to the public. In 1970, Philip Morris purchased a research facility

in Cologne, Germany, known as INBIFO. One perceived value of INBIFO was that Philip Morris

could control the research conducted there; therefore, overseas experiments could be terminated at

will. Philip Morris took steps to conceal this arrangement. Company scientists shipped documents

24

from locations in the United States to Cologne for storage in order to remove unfavorable or

embarrassing research results from Philip Morris' files during and in advance of litigation and

thereby to avoid discovery of adverse documents. Discussing how to handle records relating to the

INBIFO arrangement, senior Philip Morris scientist Thomas Osdene characterized the arrangement

as follows: "Ship all documents to Cologne . . . . Keep in Cologne . . . . If important letters have

to be sent please send to home & I will act on them and destroy."

Brown & Williamson conducted some biological research in the United States in

conjunction with its English parent company, BAT p.l.c. When the company sought to avoid

discovery of these documents in a number of personal injury lawsuits, Brown & Williamson sent

much of the American company's biological research to England so that it would not have to be

produced. Brown & Williamson sent sensitive research documents to London to avoid production

in litigation, stamped scientific documents "attorney/client, work product," and edited and

suppressed the minutes of scientific meetings to remove references to topics that might be the

subject of litigation.

Brown & Williamson also endeavored in litigation brought by smokers to prevent

the disclosure of research documents created by its affiliate, BAT Co., which contained information

contrary to Brown & Williamson's public positions that smoking did not cause disease and that

cigarettes were not addictive. To further this effort, a Brown & Williamson research scientist

received scientific reports and designated documents harmful to Brown & Williamson as protected

by the attorney work product privilege.

Defendants also enforced the conspiracy by stopping inconsistent research efforts by

any member of the group. For example, in the 1960's Reynolds established a facility in

25

Winston-Salem, North Carolina, to research the health effects of smoking using mice. In the facility

that Reynolds nicknamed the "Mouse House," Reynolds scientists researched a number of specific

areas, including studies of the actual mechanism whereby smoking causes emphysema. Internally, a

Reynolds-commissioned report favorably described the Mouse House work as the most important

of the smoking and health research efforts because it had come close to determining the underlying

mechanism of emphysema.

In 1970, Philip Morris' president complained to Reynolds about the work going on in

the Mouse House. Despite the progress made there, Reynolds responded to the complaint by

closing the Mouse House -- disbanding in one day, without notice to the staff, the entire research

division, firing all 26 scientists working there, and destroying years of smoking and health research.

Reynolds also sought to prevent documents containing research reports contrary to

the company's public positions regarding smoking and health from being disclosed in smoking and

health litigation in which Reynolds was a defendant or witness. In December 1969, the Reynolds

Research Department reported that it did "not foresee any difficulty in the event a decision is

reached to remove certain reports from Research files. Once it becomes clear that such action is

necessary for the successful defense of our present and future suits, we will promptly remove all

such reports from our files. . . . As an alternative to invalidation [of adverse reports], we can have

the authors rewrite those sections of the reports which appear objectionable."

2. The Lack of Independence of CTR

Rather than perform relevant research in-house, the Cigarette Companies claimed

that they would fulfill their promise to research and publish their findings about smoking and health

by funding independent research through the Tobacco Industry Research Committee ("TIRC"),

26

which was later renamed the Council for Tobacco Research ("CTR"). In the "Frank Statement" of

January 1954 and repeatedly over the 45 years since then, the Cigarette Companies told the public,

Congress, federal agencies, and the courts that CTR's purpose was to fund and to perform

independent scientific research on the issue of smoking and health.

For example, in 1954, TIRC told the United States Department of Justice that its

function was to fulfill the "responsibility on the part of the management of the tobacco

manufacturers and others engaged in the tobacco industry to aid in the final determination of this

controversy [as to whether smoking causes disease]," and that TIRC would "communicate

authoritative factual information on the subject to the public." Further, TIRC assured the

Department of Justice that it was "in nowise to be considered or to operate as a trade association or

to participate in any activity, or give consideration to any matters, affecting the business conduct or

activities of its members."

For example, in 1963, TIRC and TI ran an advertisement captioned, "A Statement

About Tobacco and Health," which included the statements:

C "We recognize that we have a special responsibility to the public — to helpscientists determine the facts about tobacco and health, and about certaindiseases that have been associated with tobacco use."

C "We accepted this responsibility in 1954 by establishing the Tobacco IndustryResearch Committee, which provides research grants to independentscientists. We pledge continued support of this program of research until allthe facts are known."

C "Scientific advisors inform us that until much more is known about suchdiseases as lung cancer, medical science probably will not be able todetermine whether tobacco or any other single factor plays a causative role— or whether such a role might be direct or indirect, incidental orimportant."

27

C "We shall continue all possible efforts to bring the facts to light."

In numerous court cases, defendants made similar claims about their search for the

"truth" about smoking and disease. Indeed, in the very first personal injury suit litigated in federal

court following the 1954 "Frank Statement," the Reynolds Tobacco Company stated in

interrogatory answers that the purposes of TIRC was to sponsor research into the health aspects of

tobacco and to advance medical knowledge on smoking and disease.

These and similar statements were false and misleading when made. From its

inception, TIRC (later CTR) was essentially a public relations organization designed to counter

adverse publicity concerning smoking and health, and not as an independent research organization

dedicated to getting to the bottom of the smoking and health controversy. TIRC/CTR's true

purpose, as acknowledged by Cigarette Company executives, was to provide a cover for

defendants' efforts to conceal the truth about smoking and health. While TIRC/CTR served as a

front for the Cigarette Companies' claim that they were committed to independent research,

TIRC/CTR funds were actually funneled into research controlled by defendants and designed to

advance defendants' interests in litigation.

TIRC/CTR's purported independence derived from the Scientific Advisory Board

("SAB"), which defendants claimed controlled TIRC/CTR's research priorities. By directing

attention to the SAB, defendants were able to appear to be furthering research efforts while their

true aim was to preserve and foster false doubt about the adverse health effects of smoking in order

to dissuade existing smokers from quitting and to encourage non-smokers to start.

Defendants and their agents falsely represented in public and in court that the SAB

grant process functioned independently from industry influence and was the mechanism by which

28

they were fulfilling the obligations they had undertaken in the "Frank Statement" and elsewhere. In

fact, defendants "deliberately isolated" the SAB from the activities ongoing in other parts of CTR so

that the SAB could be held out as a group of independent scientists, while CTR operated under

defendants' control. The SAB controlled only a grant process for certain research, and even that

process was closely controlled by the Cigarette Companies through their agents and attorneys, who

helped to screen proposals, to ensure that the SAB did not approve research that might suggest a

link between smoking and disease.

Consequently, the research that was funded through the SAB addressed general

issues of cancer causation and incidence -- without a focus on smoking or its role in causing disease

-- and was deliberately designed to avoid developing information on the relationship between

smoking and disease or on other science that might result in findings that were harmful to

defendants. Nor did other parts of TIRC/CTR fund objective research on the link between smoking

and disease.

While defendants promoted the SAB as an "independent" board, they funneled funds

through TIRC/CTR to conduct non-SAB research projects that were not objective or independent

as the industry had promised, but instead were designed to conclude that there was no link between

smoking and disease, and to develop favorable research and expert witnesses to defend the industry

in court. These components of TIRC/CTR were controlled by the Cigarette Companies' agents,

including attorneys, and included activities known as Special Projects. TIRC/CTR Special Projects

were initiated and developed by the Cigarette Companies through their agents, including outside

counsel, who used them to provide research funding for scientists and doctors who might be willing

to provide testimony favorable to the Cigarette Companies on smoking and health matters.

29

Special Projects were often funded when the SAB would not approve the proposed

research or when the Cigarette Companies needed favorable research for litigation and wanted it

done quickly. On occasion, the industry would use TIRC/CTR to publicize the results of carefully

selected Special Projects-funded work that was favorable to the industry, so that the work would be

more credible due to TIRC/CTR's purported independence. Defendants also planned to protect the

projects funded through Special Projects by invoking the attorney-client privilege and work product

doctrine. Through Special Projects, the Cigarette Companies funded many research projects that

were controlled by their lawyers and intended to advance the Companies' interests in lawsuits and

legislative proceedings. By design, these projects were secret unless and until defendants decided

to make them public.

The Cigarette Companies knew that the "Special Projects" work was neither

independent science nor good science. Internal company documents express concern about the

"degree to which [Special Projects] make advocacy primary and science becomes secondary," and

that, to aid in litigation, the companies, through Special Projects, were funding science that was

"not worth a damn."

When researchers funded by TIRC/CTR reached conclusions that threatened to

confirm the link between smoking and disease, the companies, at times, terminated the research and

concealed the results. For example, when Dr. Freddy Homburger concluded in 1974 that his study

of smoke exposure on hamsters indicated that cigarettes were addictive and caused disease, CTR

Scientific Director Robert Hockett and CTR lawyer Ed Jacob threatened to cut off Dr.

Homburger’s funding if his paper were published without deleting the word "cancer."

When Special Projects came under scrutiny in the 1990s, defendants ceased to

30

administer Special Projects through CTR. In fact, counsel for Lorillard suggested in an internal

document that using Special Projects to "purchase favorable judicial or legislative testimony. . .

[was] perpetrating a fraud on the public." On information and belief, defendants have continued to

fund such projects, but have moved them out of CTR and placed them directly under the auspices

of their agents and attorneys, who had long been involved in control of CTR.

In addition to Special Projects, CTR maintained various "Special Accounts" for

funding research projects that the Companies believed needed to be conducted for their own

information, but which they did not want to be discovered, in litigation or otherwise. As with

Special Projects, defendants sought to hide the existence of Special Accounts projects by taking

steps to protect documents and materials from disclosure, including instructing Cigarette Company

witnesses not to mention the existence of such accounts in legislative hearings.

E. Misrepresentations about Nicotine’s Addictiveness and Manipulation of NicotineDelivery

The primary factor that prevents cigarette smokers from quitting smoking is their

addiction to nicotine, and their need for continuing intake of nicotine in order to avoid nicotine

withdrawal. The addictive nature of nicotine is directly related to the harm caused by cigarettes,

because the risk from smoking increases with prolonged use.

Defendants and their agents have long known that nicotine is an addictive drug and

have sought to hide its addictive and pharmacological qualities. They also have long recognized

that getting smokers addicted to nicotine is what preserves the market for cigarettes and ensures

their profits. In contrast, the average consumer has not been fully aware of the addictive properties

of nicotine, and most beginning smokers — particularly children — falsely believe that they will be

31

able to quit after smoking for a few years and thereby avoid the diseases caused by smoking. By

hiding their knowledge of nicotine and making false and misleading statements concerning nicotine,

defendants have induced existing smokers to continue using their products, and induced others to

begin to smoke, particularly children, who believe, usually mistakenly, that they will be able to quit

and avoid the diseases caused by smoking.

Defendants have understood nicotine’s addictive properties since the early 1960's at

the latest. For example, Philip Morris internally discussed methods for increasing the nicotine

content of cigarettes as early as 1960. Sir Charles Ellis, scientific advisor to the board of directors

of BAT Industries, asserted in a 1962 meeting attended by Brown & Williamson representatives

that "smoking is a habit of addiction," and scientists in the Geneva laboratories of the International

Division of the Battelle Memorial Institute reported to BAT Industries on the mechanics of nicotine

addiction in 1963. BAT sponsored research at the Battelle Memorial Institute at Geneva to

investigate the physiological aspects of smoking. B&W general counsel Addison Yeaman stated in

1963 that "nicotine is addictive" and that "we are . . . in the business of selling nicotine, an addictive

drug[.]" Reynolds, understanding the importance of retaining sufficient nicotine to maintain

dependence on its so-called "low tar/low nicotine" cigarettes, internally proposed in 1971 that the

company undertake research into determining more exactly the "habituating level of nicotine."

Defendants concealed their research on the addictiveness of nicotine because they

have known that revelation of that research might substantially change the market for cigarettes and

result in successful lawsuits against defendants. The Cigarette Companies thus performed much of

their research clandestinely, and in at least one case threatened scientists who sought to publish their

research on addiction. All of this constituted a comprehensive campaign by the Cigarette

32

Companies to keep secret their knowledge of nicotine's addictive nature. For example,

C A 1977 Philip Morris study on the withdrawal effects of nicotine was

permitted to proceed only if the results were what the Cigarette Companies

wanted. If not, as a Philip Morris researcher explained, "we will want to

bury it."

C An internal 1978 Brown & Williamson memo discussed addictiveness of

nicotine and characterized nicotine as a poison, while noting that most

consumers are unaware of this. "Very few consumers are aware of the

effects of nicotine, i.e. its addictive nature and that nicotine is a

poison...hardly any consumers use nicotine numbers as a basis for their

purchase."

C In March 1980, a Philip Morris scientist produced an internal memorandum

discussing company research into the psychopharmacology of nicotine. The

research was "aimed at understanding that specific action of nicotine which

causes the smoker to repeatedly introduce nicotine into his body." The

internal memorandum noted that it was "a highly vexatious topic" that

company lawyers did not want to become public because nicotine's drug

properties, if known, would support regulation of tobacco by the federal

Food and Drug Administration (“FDA”). Consequently, the memorandum

observed, "[o]ur attorneys . . . will likely continue to insist on a clandestine

effort in order to keep nicotine the drug in low profile."

C In the early 1980's, Philip Morris hired Victor DeNoble and Paul Mele to

33

study the effects of nicotine on the behavior of rats and to research and test

potential nicotine analogues. DeNoble and Mele' s research demonstrated

that nicotine was addictive and that in terms of addictiveness, "nicotine

looked like heroin." In August 1983, Phillip Morris ordered DeNoble to

withdraw a research paper on nicotine that had already been accepted for

publication after a full peer review by the journal Psychopharmacology. Less

than a year later, Philip Morris abruptly closed DeNoble's nicotine research

lab. Philip Morris executives threatened DeNoble and Mele with legal action

if they published or talked about their nicotine research. The animals were

killed, the equipment was removed, and all traces of the former lab were

eliminated.

As with the adverse health effects of smoking, defendants failed to warn consumers

and others of the addictive nature of nicotine and made false and misleading statements to the public

and others about addiction. For example,

C In 1963, when the Surgeon General was preparing his first report on

smoking and health, Brown & Williamson considered whether to provide its

research indicating the addictiveness of nicotine, but withheld this research

from the Surgeon General. The Surgeon General's Report did not conclude

that nicotine is addictive.

C In 1988, when the Surgeon General finally concluded, based on non-industry

research, that nicotine is addictive, the Tobacco Institute, on behalf of the

Cigarette Companies, attacked the report by saying that "claims that

34

cigarettes are addictive contradict common sense. . . . The claim that

cigarette smoking causes physical dependence is simply an unproven attempt

to find some way to differentiate smoking from other behaviors."

Statements such as this, frequently repeated by the Cigarette Companies and their agents, were

knowingly false and misleading when made.

Defendants' efforts to suppress information on the addictiveness of nicotine continue

today. For example, in 1997, Liggett broke ranks and began placing a statement on the packs of

cigarettes manufactured by it specifically warning that smoking is addictive. On or about January

12, 1999, Philip Morris entered into an agreement with Liggett to purchase certain brands of

cigarettes previously manufactured by Liggett, including Lark, Chesterfield, and L&M, each of

which, at the time of their sale to Philip Morris, contained the warning concerning the addictiveness

of smoking. After it purchased these brands, Philip Morris altered the packaging of Lark,

Chesterfield, and L&M cigarettes to eliminate the warning concerning addictiveness. These brands

of cigarettes were no less addictive after their purchase by Philip Morris than when they had been

manufactured by Liggett. This alteration continued defendants’ efforts to conceal from cigarette

purchasers, and from the public in general, the addictive nature of cigarette smoking.

As a result of the defendant’s false statements denying the addictive nature of

cigarettes, and their suppression of information demonstrating the addictive nature of cigarettes,

more people have become addicted or remained addicted to the product. In fact, among 12-17 year

old smokers, 70% regret their decision to start smoking, and 66% want to quit. Similarly, 70% of

cigarette smokers would like to stop completely.

At the same time they were denying the addictiveness of nicotine, the Cigarette

35

Companies were developing and using highly sophisticated technologies designed to deliver nicotine

in precisely calculated ways that are more than sufficient to create and sustain addiction in the vast

majority of individuals who smoke regularly. The Cigarette Companies control the nicotine content

of their products through selective breeding and cultivation of plants for nicotine content and

careful tobacco leaf purchasing and blending plans, and control nicotine delivery (i.e., the amount

absorbed by the smoker) with various design and manufacturing techniques. For example, as

explained in an internal 1973 Reynolds document:

Methods which may be used to increase smoke pH and/or nicotine"kick" include: (1) increasing the amount of (strong) burley in theblend, (2) reduction of casing sugar used on the burley and/or blend,(3) use of alkaline additives, usually ammonia compounds, to theblend, (4) addition of nicotine to the blend, (5) removal of acids fromthe blend, (6) special filter systems to remove acids from or addalkaline materials to the smoke, and (7) use of high air dilution filtersystems. Methods 1-3, in combination, represent the Philip Morrisapproach, and are under active investigation [by Reynolds].

The Cigarette Companies have also investigated a wide variety of other additives,

ingredients, and techniques aimed at improving their control of nicotine and thereby their ability to

manipulate the addictiveness of cigarettes. Cigarette Companies’ use of certain ingredients in their

products has been predicated on the belief that they increased the potency, absorption, or effect of

nicotine.

The Cigarette Companies have repeatedly (and falsely) denied that they manipulate

the nicotine levels and nicotine delivery in their products.

For example, the Cigarette Companies have sought to mislead the public about

whether they manipulate nicotine by maintaining that nicotine levels follow tar levels. In his 1994

testimony before the Subcommittee on Health and the Environment of the Committee on Energy

36

and Commerce, United States House of Representatives ("Health Subcommittee"), the Vice

Chairman and Chief Operating Officer of Lorillard, Dr. Alexander Spears, stated that "[n]icotine

follows the tar level," and the correlation between the two "is essentially perfect," and "shows that

there is no manipulation of nicotine." In a 1981 study, however, Dr. Spears had previously stated

explicitly that “low-tar” cigarettes use special blends of tobacco to keep the level of nicotine up

while tar is reduced: "[T]he lowest tar segment [of product categories] is composed of cigarettes

utilizing a tobacco blend which is significantly higher in nicotine." Dr. Spears did not inform

Congress of his earlier statement.

Reynolds, Lorillard, B&W, American, and TI have also represented to the public and

to the FDA that the nicotine levels in their products are purely a function of setting the tar levels of

such products. American told the Health Subcommittee in an October 14, 1994 letter that "nicotine

follows 'tar' delivery, i.e., high 'tar' -- high nicotine, low 'tar' -- low nicotine." Similarly, a 1994

Reynolds advertisement appearing after the Health Subcommittee hearings stated: "We do not

increase the level of nicotine in any of our products in order to addict smokers. Instead of

increasing the nicotine levels in our products, we have in fact worked hard to decrease 'tar' and

nicotine." (emphasis in original). The ad further touted Reynolds' use of "various techniques that

help us reduce the 'tar' (and consequently the nicotine) yields of our products."

By falsely denying that the Cigarette Companies manipulate the delivery of nicotine

levels in cigarettes, defendants furthered their common efforts to deceive the public concerning the

addictive nature of nicotine and consequently of cigarettes that contain nicotine.

F. Deceptive Marketing to Exploit Smokers' Desire for Less Hazardous Products

The Cigarette Companies have misled consumers by marketing products that

37

consumers believe are less harmful, even though they are not.

Despite the existence of evidence that smoking causes disease, the Cigarette

Companies claimed in the 1940's and 50's both that their products did not cause health problems,

and that cigarette smoking was good for people's health. These health claims were false and

misleading and made without adequate investigation or testing of the products sold. During the

1940's and 50's, the United States Federal Trade Commission ruled that some of the Cigarette

Companies' health claims were false and deceptive.

In response to concern among smokers about the adverse health effects of cigarette

smoking, the Cigarette Companies sought to boost sales during the 1950's by advertising filtered

cigarettes with explicit warranties of tar/nicotine content and health claims. These claims were also

misleading and made without adequate investigation or testing of the Cigarette Companies'

products.

Consumers continued to be concerned about the adverse health effects of smoking,

and, in the 1960's, the Cigarette Companies responded by developing and marketing so-called

"light" or "low tar/low nicotine" cigarettes. These cigarettes are designed to generate lower tar and

nicotine on standard machine smoking tests than do other cigarettes, and they do so. Consequently,

the Cigarette Companies have marketed these products with claims such as "light" and "ultra low

tar" to suggest to consumers that smokers of these products inhale less tar and nicotine than

smokers of other cigarettes. Consumers therefore believe that these products are less hazardous.

However, the Cigarette Companies deliberately designed these cigarettes in a way that, as actually

smoked by most cigarette smokers, they typically do not actually deliver less tar or nicotine. As a

result, there is no basis for believing they are safer than other cigarettes.

38

The Cigarette Companies manipulate the design of such cigarettes in order to

decrease the smoking machine's intake of tar and nicotine in a way that is not replicated by human

smokers. One common means by which Cigarette Companies achieve "low tar/low nicotine" levels

on the standard machine tests is through the use of tiny ventilation holes in the filter. These

ventilation holes are so small that they are virtually invisible except under magnification and are

placed so that consumers routinely block them with their lips or fingers during smoking, but the

smoking machine does not block them. Most smokers are either unaware of the use of ventilated

filters on cigarettes or are unaware that blocking the vents has the effect of increasing the tar and

nicotine yield of the cigarettes as they are actually smoked. In addition, as the Cigarette Companies

have long known, smokers unconsciously tend to "compensate" for a lower nicotine yield, either by

inhaling more deeply or taking more puffs, so that they receive sufficient nicotine to satisfy their

addiction. Thus, while the Cigarette Companies lead smokers to believe they are reducing their

health risk by switching to a "low tar/low nicotine" brand, those smokers are in fact not appreciably

reducing their health risk.

In addition to the use of ventilated filters, the Cigarette Companies have increased

the potency of the nicotine that "low tar/low nicotine" cigarettes contain by a variety of methods,

including blending.

Despite the Cigarette Companies' knowledge that addicted smokers compensate to

obtain sufficient nicotine, and that "low tar/low nicotine" cigarettes are not appreciably less

hazardous than other cigarettes, the Cigarette Companies have recognized, contributed to, and

exploited — for their own profit — consumers' misconception that "low tar/low nicotine" cigarettes

are less hazardous.

39

By advertising "light," "ultra-light," and "low tar/ low nicotine" cigarettes, the

Cigarette Companies have lulled smokers into believing that they can reduce the health risk created

by cigarette smoking by switching to these "light" products, and have thereby reduced the incentive

for smokers to quit smoking. The effectiveness of this marketing effort is demonstrated by the fact

that "low tar/low nicotine" cigarettes now account for a substantial majority of the American

cigarette market.

The Cigarette Companies have advertised for "low tar/low nicotine" cigarettes

through misleading advertising that emphasizes the health of those pictured without expressly

making health claims. The Cigarette Companies know and intend that these advertisements mislead

consumers into believing that the products pictured are less hazardous than other cigarettes.

Despite their knowledge that "low tar/low nicotine" cigarettes were in fact not significantly less

hazardous than other cigarettes, the Cigarette Companies expressly marketed such cigarettes as a

viable alternative to quitting smoking from a health standpoint. For example, in 1975, Lorillard

advertised "True" cigarettes by depicting a female smoker saying, "I thought about all I'd read and

said to myself, either quit or smoke True. I smoke True," as well as by depicting a male smoker

saying, "I'd heard enough to make me decide one of two things: quit or smoke True. I smoke

True." Similarly, in 1976, Reynolds’ advertising campaign for its Vantage cigarettes told smokers,

"If you're like a lot of smokers these days, it probably isn't smoking that you want to give up. It's

some of that 'tar' and nicotine you've been hearing about." The Cigarette Companies are continuing

to advertise their products in the national news media in such a manner as to lull smokers into

believing that they can, by using so-called "low tar/low nicotine" cigarettes, reduce their exposure

to the harmful constituents of cigarette smoke, despite knowledge on the part of the Cigarette

40

Companies that most smokers do not substantially reduce their tar and nicotine exposure by

switching to them.

G. Targeting the Youth Market

For most of this century, it has been illegal to sell cigarettes to children in most

states. Currently, it is illegal to sell cigarettes to children under the age of 18 in all states.

Defendants used the Tobacco Institute to shield the Cigarette Companies' advertising

to minors. In 1964, defendants publicized a voluntary "cigarette advertising code" that had been

agreed to by all the major cigarette manufacturers. The code prohibited advertising directed at

young people or the use of celebrities or sports figures in advertisements for cigarettes. Over the

next thirty years, defendants, primarily through publications of the Tobacco Institute and in

congressional testimony, reiterated their pledge to avoid advertising directed at young people, while

at the same time individual companies were aggressively marketing cigarettes to young people

through advertising.

Despite the illegality of sales to children, and despite denying that they do so, the

Cigarette Companies have engaged in a campaign to market cigarettes to children. The Cigarette

Companies have long known that recruiting new smokers when they are teenagers ensures a stream

of profits well into the future because these new smokers will become addicted and continue to

smoke for many years, and the young smokers are "replacements" for older smokers who either

reduce or cease smoking or die.

Recognizing the profits to be had from this illegal market, the Cigarette Companies

researched how to target their marketing at children and actively marketed cigarettes to children.

As a result of this research -- including research conducted in the 1950's into the smoking habits of

41

12-year-olds -- defendants have long known that young people tend to begin smoking for reasons

unrelated to the presence of nicotine in cigarette smoke, but then become confirmed, long-term

smokers because they become addicted to nicotine. Defendants are further aware that although

beginning smokers realize that there are some health risks associated with long-term smoking,

beginning smokers almost universally fail to appreciate the addictive nature of cigarette smoking,

and therefore fail to appreciate the risk that, by engaging in smoking while they are adolescents,

they will become long-term smokers because of the development of an addiction to nicotine.

Moreover, the earlier a person begins to smoke, the more likely it is that he or she will develop a

smoking related disease.

The Cigarette Companies have aggressively targeted their advertising campaigns to

children. Cigarette Companies' advertising glamorizes smoking and its content is intended to entice

young people to smoke, for example, as a rite of passage into adulthood or as a status symbol.

Among the techniques used by the Cigarette Companies to attract underage smokers were

advertising in stores near high schools, promoting brands heavily during spring and summer breaks,

giving cigarettes away at places where young people are likely to be present in large numbers,

paying motion picture producers for product placement in motion pictures designed to attract large

youth audiences, placing advertisements in magazines commonly read by teenagers, and sponsoring

sporting events and other activities likely to appeal to teenagers.

During the 1970's and 1980's, Reynolds' substantial market research indicated that

Philip Morris, and particularly its Marlboro brand, was dominating the youth market. Reynolds

recognized that, in order to maintain its profits over the long term, it was critically important to

attract its own cadre of teen-age smokers. Internal Reynolds documents specifically cited the need

42

to recruit youths as "replacement smokers." Thus, Reynolds developed the Joe Camel campaign —

based on a cartoon character — to appeal to the youngest potential smokers. In 1988, Reynolds

began a massive dissemination of products such as matchbooks, signs, clothing, mugs and drink can

holders advertising Camel cigarettes. The advertising was effective in attracting adolescents and, as

a result of the campaign, the number of teenage smokers who smoked Camel cigarettes rose

dramatically.

Despite the overwhelming evidence that they have deliberately sought to target

young people for the sale of cigarettes, defendants have denied such activities in false and

misleading communications to the public, to legislative and regulatory bodies, and in judicial

proceedings. For example, in 1981, Brown & Williamson denied that it geared its advertising to

young people following criticism in a press report. Others have followed suit: Reynolds ran a

series of advertisements in 1984 claiming that "We don't advertise to children."

To avoid full disclosure of its practices regarding Joe Camel, in 1991, while the

Federal Trade Commission was investigating Reynolds' practices of advertising and marketing to

children, Reynolds instructed its advertising agency to destroy documents in the advertising

agency's possession related to the Joe Camel campaign.

The Cigarette Companies have long maintained that their expenditures on

advertising and promotion — more than $68 billion between 1954 and 1997— was directed solely

at persuading current smokers to switch brands, not to attracting new smokers and not to attract

children. These statements were false and misleading, and were intended to ensure that they could

continue to entice young people to smoke and become addicted by defeating potential efforts by

parents and governmental entities to stop such marketing efforts.

43

In July 1969, the Chairman of the Tobacco Institute, Joseph F. Cullman, III,

testified before a Senate Commerce subcommittee: "It is the intention of the cigarette

manufacturers to avoid advertising directed to young persons . . . to avoid advertising which

represents that cigarette smoking is essential to social prominence, success, or sexual attraction; and

to refrain from depicting smokers engaged in sports or other activities requiring stamina or

conditioning beyond those required in normal recreation."

In 1983, the Tobacco Institute published a pamphlet entitled "Voluntary Initiatives

of a Responsible Industry." The pamphlet noted that "in 1964, the industry adopted a cigarette

advertising code prohibiting advertising, marketing and sampling directed at young people." The

pamphlet made the claim that "all companies continue to observe the principles of this code."

The Cigarette Companies actively targeted their marketing to children with full

knowledge that sales to children were illegal, that children would not appreciate the dangers of the

product or its addictiveness, that most of the children who began to smoke would become addicted,

and that a significant percentage would develop smoking-related diseases or suffer premature death

as a result. They denied doing so with full knowledge that such denials were false and misleading.

H. Defendants' Concerted Plan Not To Make Cigarettes Less Hazardous

Defendants also retained and maintained their agreement by restraining, concealing,

and suppressing the research and marketing of less hazardous cigarettes. The Cigarette Companies

have been and are able to develop an alternative product that is less hazardous than the products

that they have been selling. Cigarettes are much more complex products than simple rolled

tobacco. The Cigarette Companies manipulate their products in many ways. They add chemicals

and flavorings (some of which are harmful when burned and inhaled), manipulate levels of nicotine

44

and other chemicals, and engineer the delivery of tobacco smoke though filters, ventilation holes,

and other means. At least since the early 1960's, the Cigarette Companies have been able to remove

potential carcinogens and to independently alter the delivery of tar and nicotine respectively. Many

alternative designs are possible, some of which are less hazardous than the cigarettes that the

Cigarette Companies actually manufactured and sold.

By the early 1960s, defendants discovered that many specific constituents in tobacco

smoke were carcinogens, or were linked to other diseases. By November 1961, Philip Morris had

conducted sufficient research to conclude that a "medically acceptable low-carcinogen cigarette

may be possible." Although Philip Morris never publicly released the results of this research, the

research and development department at Philip Morris continued research into less hazardous

cigarettes in order to be prepared to compete in the event that another cigarette company marketed

such a product. Based on the extensive research it had conducted and its preparation for

competition with other manufacturers, in 1964, defendant Philip Morris test marketed the Saratoga

cigarette, which used a charcoal filter and which was, in their researchers' view, "superior to

anything in the market place" from a health standpoint.

In the late 1980's, defendant Reynolds selectively marketed Premier, a smokeless

cigarette that Reynolds believed was less hazardous than its conventional products. Research

relevant to the development of the Premier cigarette at Reynolds dates back to the 1960's.

Liggett also developed, but did not market, a product that Liggett believed was a

less hazardous cigarette. The product was developed through a research project called "Project

XA" that had first begun in the late 1960's. After extensive research, Liggett employees believed

that they had discovered which cigarette smoke constituents were carcinogens and had found a way

45

to remove them.

Despite their demonstrated ability to design cigarettes that they believed were less

hazardous, defendants have refused to test and/or actively promote such products, and have

suppressed the marketing of such products by others, and have refused to acknowledge the

possibility of a less hazardous product.

The Cigarette Companies' refusal to acknowledge the possibility of a less hazardous

product is in part a result of their efforts to avoid liability for, among other things, negligence and

product liability claims. To state that a less hazardous product could be — or has in fact been —

developed would constitute an admission that the products they currently sell are hazardous, or

unreasonably so. Just as they suppressed information about the health effects and addictive nature

of smoking, defendants also suppressed any information they developed about less hazardous

design.

Philip Morris' research and development of the Saratoga cigarette, for example, was

intended as a scheme to defeat any effort by its competitors to market a less hazardous cigarette. A

presentation to the Philip Morris Board of Directors, in October 1964, noted: "[T]he Research and

Development Department is working to establish a strong technological base with both defensive

and offensive capabilities in the smoking and health situation. Our philosophy is not to start a war,

but if war comes, we aim to fight well and to win." Their strategy was to develop a less hazardous

product but to market it only if necessary, and to use it as a deterrent to marketing of such products

by other companies. Although internal company documents demonstrate that Philip Morris

researchers thought the product to be a less hazardous cigarette, Philip Morris discontinued

production after the initial phase of test marketing.

46

Despite Liggett officials' belief that the cigarette developed as a result of Project XA

was commercially marketable, the company never promoted the less hazardous cigarette and

suppressed the research that led to its development.

Another reason why some of defendants did not produce and market a less

hazardous cigarette was because other defendants threatened retribution in the event the company

proceeded. For example, Liggett's assistant research director, Dr. James Mold, said that Liggett's

president had reported that he was "told by someone in the Phillip Morris Company that if we tried

to market such a product [as XA] that they would clobber us."

A further mechanism defendants employed to deter the development and marketing

of less hazardous products was the "gentleman's agreement." The Cigarette Companies' mutual

commitment to share discovery of a "safe" cigarette with all other Cigarette Companies, by design,

substantially reduced the financial incentive any Cigarette Company might otherwise have had to

develop and market such a product.

I. The Present and Continuing Threat

Defendants' conspiracy to deceive, mislead, and withhold information from the

public, and from public legislative, regulatory, and judicial bodies about the adverse health effects of

smoking, the addictiveness of nicotine, the manipulation of the delivery of nicotine, marketing to

children, and the possibility of less hazardous designs has continued up through the present day.

In 1994, the chief executive officers of the Cigarette Companies testified under oath

before the Health Subcommittee and once again repeated defendants' "party line." These executives

knowingly provided misleading testimony regarding smoking, health, and addiction.

The Cigarette Company executives made these representations, among others,

47

despite the substantial body of evidence, including information developed by the Cigarette

Companies themselves dating back for many years prior to their testimony, indicating that nicotine

is addictive and is the central reason why people continue to smoke, that the Cigarette Companies

sought to ensure that smokers stayed addicted and that cigarettes are potentially lethal to smokers

when used as intended by the Cigarette Companies.

In their public statements, the Cigarette Companies continued to deny that nicotine

is addictive and, instead, used various misleading explanations for the role of nicotine, such as

"enhances the taste of the smoke" and affects "the way it feels on the smoker's palate," and that it

provides "satisfaction," "strength," "rich aroma," "mouth impact," and "pleasure," despite

widespread agreement in the medical and scientific communities that the primary, if not sole,

function of nicotine is to provide a pharmacological effect on the smoker that leads to addiction.

According to the 1988 U.S. Surgeon General report: "The pharmacologic and behavioral processes

that determine tobacco addiction are similar to those that determine addiction to drugs such as

heroin and cocaine."

In addition to their repetition of the same false and misleading statements discussed

above, the Cigarette Companies also continued to suppress and conceal documents and information

in their possession concerning, inter alia, smoking and health, addiction, the addictiveness of

nicotine, the health effects of low tar and low nicotine products, the potential availability of a less

hazardous product, and their efforts to market to children.

In January 1998, as Congress was considering comprehensive legislation that might

have limited the industry's liability, the Cigarette Companies finally acknowledged that smoking may

cause disease. Philip Morris Companies admitted that "a substantial body of evidence which

48

supports the judgment that cigarette smoking plays a causal role in the development of lung cancer

and other diseases in smokers." Similarly, the Chairman and CEO of RJR Nabisco, Reynolds'

parent corporation, stated his belief that "smoking plays a role in causing cancer, lung cancer in

some people."

The Cigarette Company executives also conceded that cigarettes are addictive under

some accepted definitions. In early 1998, Brown & Williamson and RJR Nabisco executives agreed

that nicotine is addictive under the "man in the street's definition" and as "people use the term

[addiction] today." Moreover, the CEO of Brown & Williamson admitted that his personal position

-- that smoking is not addictive -- was at odds with "the rest of the world," and did not dispute the

"rest of the world's" use of the word addiction in relation to cigarette smoking.

The Cigarette Companies' careful, semantic admissions were short-lived. In the

spring of 1998, during the state of Minnesota's trial against the Cigarette Companies, defendants'

officials returned to the same false and misleading statements that they have always made and

denied the addictiveness of nicotine and the health effects of smoking.

The Cigarette Companies eventually settled their suits with the states in the fall of

1998. Despite the injunctive relief obtained by the states, defendants continue to market their

products in many of the same ways they had before the settlement, and continue to keep secret

research and other documents that would provide the public and regulators with a fuller

understanding of the health effects of cigarettes, particularly the addictiveness of nicotine. In

particular, the results of defendants' research overseas for the last few decades have not been made

public.

Indeed, to this day, defendants are continuing to block disclosure of the very

49

documents that reveal the deception in the Cigarette Companies' half-century false and misleading

promotion of TIRC/CTR — in public, in Congress, and in court — as an independent organization

designed to find out the truth about smoking and health.

The Cigarette Companies, who hold 99% of the market for cigarettes in the United

States, pose a continuing threat to the health and well-being of the American public and there is

every reason to believe that they will continue with their fraudulent and unlawful conduct.

The effects of defendants' conspiracy will be felt for many years into the future, and

the Cigarette Companies continue to benefit from their fraudulent statements, and suppression of

information. Smokers remain addicted and will be far into the foreseeable future, and they, as well

as the federal government, will be forced to furnish and pay for medical care and treatment for

smoking-related diminished health, diseases, illnesses, and injuries well into the next century — all

while the tobacco companies continue to earn enormous profits from addicted smokers.

V. DEFENDANTS' LIABILITY FOR THE UNITED STATES' HEALTH CARE COSTS

A. Count One: Liability Under The Medical Care Recovery Act

The United States of America realleges and incorporates by reference in this Count

the allegations contained in Sections I. through IV., above, and in the Appendix to this Complaint, as

if fully set forth herein.

The Medical Care Recovery Act, 42 U.S.C. § 2651, et seq., authorizes the United

States to recover the reasonable value of certain hospital, medical, surgical, or dental care and

treatment. Pursuant to the Medical Care Recovery Act, the United States is entitled to recover for

such care or treatment under circumstances creating a tort liability upon a third person.

Each year, the United States, pursuant to various statutory entitlement programs,

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furnishes and pays for hospital, medical, surgical, and dental care (hereinafter collectively referred to

as "health care services") for numerous current and former consumers of the Cigarette Companies'

products. The statutes pursuant to which the United States furnishes and pays for such health care

costs include, but are not limited to,

(1) the Medicare statute, Subchapter XVIII of the Social Security Act, 79 Stat. 290,

as amended, 42 U.S.C. § 1395 et seq., pursuant to which the Health Care Financing

Administration ("HCFA"), which is part of the Department of Health and Human

Services, pays for certain health care services, including, but not limited to, the costs

of hospital care, post-hospital care, home health services, and hospice care as well as

services rendered by physicians and other health care practitioners, for tens of

millions of eligible beneficiaries, including, but not limited to, individuals over the age

of 65, individuals with disabilities, and individuals with end-stage renal disease

(hereinafter referred to as the "Medicare Program");

(2) Chapter 17 of Title 38 of the United States Code, 38 U.S.C. § 1701 et seq.,

pursuant to which the Department of Veterans Affairs ("VA"), through the Veterans

Health Administration ("VHA") and the Civilian Health and Medical Program for the

VA ("CHAMPVA"), provides and pays for inpatient and outpatient health care

services for veterans and their dependents and survivors as well as nursing home care

for many veterans (hereinafter referred to as the "VA Health Benefits Program");

(3) Chapter 55 of Title 10 of the United State Code, 10 U.S.C. § 1071 et seq.,

pursuant to which the Department of Defense ("DOD") provides and pays for health

care services, through military hospitals, clinics, and other facilities and through the

51

Civilian Health and Medical Program for the Uniformed Services ("CHAMPUS"),

and the newer program known as TRICARE, for millions of current members and

certain former members of the uniformed services and their dependents (hereinafter

referred to as the "Military Health System" or "MHS");

(4) the Federal Employees Health Benefits Act ("FEHBA"), 5 U.S.C. § 8901 et seq.,

pursuant to which the United States, through the Office of Personnel Management

("OPM"), pays for a large portion of the cost of the health care services provided to

millions of Federal Government employees and certain other individuals (hereinafter

referred to as the "Federal Employees Health Benefits Program" or "FEHBP").

Pursuant to these statutes and to other laws, the United States furnishes and pays for,

and will in the future be authorized and required to continue to furnish and pay for, hospital, medical,

surgical and dental care for diseases, illnesses, and injuries resulting from cigarette smoking. Care

provided for the diseases, illness, and injuries caused by cigarette smoking and furnished or paid for

by the United States has a reasonable value of more than $20 billion per year.

The cigarette smokers on whose behalf the United States furnishes or pays for

hospital, medical, surgical, and dental care have been injured or suffer disease under circumstances

that create a tort liability upon defendants. That tort liability arises as follows:

1. Defendants' Liability for Fraud (Fraudulent Misrepresentation, Concealment,and Nondisclosure)

Defendants and their co-conspirators have engaged in a consistent course of conduct

through which they have fraudulently misled past, present and prospective smokers, governmental

authorities, and other members of the public. Defendants and their co-conspirators have made false

52

and misleading statements that there is no causal connection between cigarette smoking and adverse

health effects or that there is an open question as to whether smoking causes disease. They have

made false promises to conduct and disclose objective research on the issue of smoking and health,

and they have fraudulently concealed information relating to the issue of smoking and health.

Defendants and their co-conspirators have made affirmative material misrepresentations, have

omitted material facts, and have concealed material information concerning the health risks

associated with smoking cigarettes, particularly "light" or "low tar/ low nicotine" cigarettes. They

have made false and misleading statements and concealed material information concerning both the

addictiveness of nicotine and their own manipulation of the nicotine delivery in cigarettes. They

have falsely denied marketing cigarettes to children.

At the time that these false or misleading statements and representations were made,

defendants and their co-conspirators knew or should have known that their statements were

materially fraudulent, false or misleading, and they intentionally omitted or concealed material

information. Additionally or in the alternative, defendants and their co-conspirators made the

statements recklessly with conscious disregard for the truth or falsity of their representations to the

public.

Defendants and their co-conspirators had superior access to information about

smoking and health, had made public promises to be completely forthcoming with such information

and made misleading partial disclosure as to these issues. They had therefore assumed a duty to

disclose to government regulators and to the public material facts concerning the relationship

between cigarette smoking and disease generally, including material facts about the addictiveness of

nicotine, their own manipulation of the nicotine delivery in cigarettes, and the health risks associated

53

with cigarettes, including "light" or "low tar/low nicotine" cigarettes. Defendants also had a legal

duty to disclose their efforts and ability to research, develop, and market a less hazardous and less

addictive cigarette. They had a duty not to market their products to children. Nevertheless,

defendants and their co-conspirators intentionally or recklessly failed to disclose or deliberately

concealed those material facts from the public and from governmental agencies.

Defendants and their co-conspirators committed hundreds, and perhaps thousands, of

acts involving material fraudulent misrepresentations, fraudulent concealment, and fraudulent

nondisclosures over the course of the last forty-five years. Defendants' and their co-conspirators'

acts of concealment took a number of forms, many of which are unknown to Plaintiff because such

actions and concealment are within the exclusive knowledge of defendants. The United States is

unable to allege in full the numerous advertisements, press releases, and other communications that

defendants and their co-conspirators released over the past forty-five years because the United States

does not have access to this information. Indeed, it is defendants themselves who are in the best

position to know the contents of each and every such misrepresentation and fraudulent statement.

Specific examples of the material fraudulent misrepresentations, fraudulent concealment, and

fraudulent nondisclosure of defendants and their co-conspirators include, but are not limited to, the

acts set forth in Section IV, above, and in the Appendix to this Complaint, which are alleged and

relied upon here as if fully set forth herein.

Defendants and their co-conspirators made these and other fraudulent

misrepresentations and omissions intending to deceive consumers, and to induce members of the

public and governmental agencies to believe that cigarettes are not addictive and to believe that

cigarettes are not dangerous to health or to harbor false doubts about the health risks of cigarettes.

54

By making the false and misleading representations and omissions, defendants and their co-

conspirators intended to create a false controversy about smoking and disease and to induce smokers

and prospective smokers to buy and smoke cigarettes. Defendants and their co-conspirators also

intended to discourage smokers from reducing their consumption of cigarettes and from trying to

quit smoking.

Members of the public believed in the truth and completeness of the statements made

by defendants and their co-conspirators. They relied upon the statements by defendants and their co-

conspirators, including statements that created a false controversy about smoking and disease, and

demonstrated that reliance by purchasing and smoking cigarettes, and by refraining from trying to

quit or reduce their consumption of cigarettes. The belief in and reliance upon defendants' and their

co-conspirators' representations by members of the public was intended by defendants and was both

justifiable and reasonable.

As a direct and proximate result of the fraudulent misrepresentations, omissions, and

concealment by defendants and their co-conspirators, individually and collectively, members of the

public began to smoke and continued smoking and, as a result, they suffered harm. Among other

things, smokers experienced diminished overall health and an increased risk of disease and illness,

and endured smoking-related diseases, and injuries. Among those who suffered injury as a result of

defendants' and their co-conspirators' fraudulent conduct are persons for whom the United States

was authorized and required to furnish and pay for, has furnished and paid for, and will furnish and

pay for, hospital, medical, surgical, or dental care and treatment under various federal programs,

including those referred to in the third numbered paragraph of Section V. A., above.

55

2. Defendants' Liability for Violations of State Consumer Protection Statutes (Unfair, Unconscionable, and Deceptive Acts or Practices)

All of the states and the District of Columbia have consumer protection statutes that

prohibit unfair, unconscionable, deceptive and misleading trade practices directed toward consumers,

and private consumers may recover damages for conduct that violates these statutes. See Ala. Code

Ann. § 8-19-1 et seq.; Alaska Stat. § 45.50.471 et seq.; Ariz. Rev. Stat. § 44-1521 et seq.; Ark.

Code Ann. § 4-88-101 et seq.; Cal. Civ. Code § 1750 et seq.; Colo. Rev. Stat. § 6-1-101 et seq.;

Conn. Gen. Stat. § 42-110a et seq.; Del. Code tit. 6 §§ 2511 et seq., 2531 et seq.; D.C. Code § 28-

3901 et seq.; Fla. Stat. §§ 501.201 et seq., 817.40 et seq.; Ga. Code § 10-1-390 et seq.; Haw. Rev.

Stat. §§ 480-1 et seq.; Idaho Code § 48-601 et seq.; Ill. Rev. Stat. ch. 815 §§ 505, 510; Ind. Code §

24-5-0.5-1 et seq.; Iowa Code §§ 714.16 et seq., 611.21; Kan. St. Ann. § 50-623 et seq.; Ky. Rev.

Stat. §§ 367.110 et seq., 517.020, 517.030, 446.070; La. Rev. Stat. § 51:1401 et seq.; Me. Rev.

Stat. tit. 5 § 205A et seq.; Md. Com. Law Code § 13-101 et seq.; Mass. Gen Laws ch. 93A; Mich.

Comp. Laws §§ 445.901 et seq., 445.356 et seq.; Minn. Stat. §§ 8.31, 325D.09 et seq., 325D.44 et

seq., 325F.67, 325F.68 et seq.; Miss. Code § 75-24-1 et seq.; Mo. Rev. Stat. § 407.010 et seq.;

Mont. St. Ann. § 30-14-101 et seq.; Neb. Rev. Stat. §§ 59-1601 et seq.; Nev. Rev. Stat §§ 41.600 et

seq., 598.0903 et seq.; N.H. Rev. Stat. § 358-A:1 et seq.; N.J. Stat. Ann. § 56:8-2 et seq.; N.M.

Stat. § 57-12-1 et seq.; N.Y. Gen. Bus. Law §§ 349, 350; N.C. Gen. Stat. § 75-1.1 et seq.; N.D.

Cent. Code §§ 51-15-01 et seq., 51-12-01 et seq.; Ohio Rev. Code §§ 1345.01 et seq.; 4165; Okla.

Stat. tit. 15 § 751 et seq.; Okla. Stat. tit. 78 § 51 et seq.; Or. Rev. Stat. § 646.605 et seq.; Pa. Stat.

tit. 73 § 201-1 et seq.; R.I. Gen. Law § 6-13.1-1 et seq.; S.C. Code § 39-5-10 et seq.; S.D. Codified

Laws Ann. § 37-24-1 et seq.; Tenn. Code Ann. § 47-18-101 et seq.; Tex. Bus. & Com. Code

56

§ 17.41 et seq.; Utah Code §§ 13-11-1 et seq., 13-11A-1 et seq.; Vt. Stat. tit. 9 § 2451 et seq.; Va.

St. §§ 59.1-196 et seq., 18.2-216, 59.1-68.3; Wash Rev. Code § 19.86.010 et seq.; W. Va. Code

§ 46A-6-101 et seq.; Wis. Stat. §§ 100.18, 100.20; and Wyo. Stat. § 40-12-101 et seq.

The conduct of defendants and their co-conspirators, as set forth above, violated their

duty imposed upon them by the above-cited statutes to refrain from engaging in unfair, deceptive,

and unconscionable trade practices. In particular, the knowingly fraudulent misrepresentations,

fraudulent omissions, and fraudulent concealment of material facts described in Section IV, above,

and in the Appendix to this Complaint, had the capacity, tendency, or effect of deceiving or

misleading consumers and constituted unfair, deceptive, and unconscionable trade practices for

which defendants were and are subject to tort liability under the above-cited statutes.

Defendants and their co-conspirators made false and misleading statements that there

is no causal connection between cigarette smoking and adverse health effects or that there is an open

question as to whether smoking causes disease. They have made false promises to conduct and

disclose objective research on the issue of smoking and health, and they have fraudulently concealed

information relating to the issue of smoking and health. Defendants and their co-conspirators have

made affirmative material misrepresentations, have omitted material facts, and have concealed

material information concerning the health risks associated with smoking cigarettes, particularly

"light" or "low tar/low nicotine" cigarettes. They have made false and misleading statements and

concealed material information concerning both the addictiveness of nicotine and their own

manipulation of nicotine delivery in cigarettes. They have falsely denied marketing cigarettes to

children. In so doing, defendants further violated their duties under the state consumer protection

statutes to refrain from representing that their products are of a particular standard, grade, or quality

57

when they are not, from representing that their cigarettes have characteristics, ingredients, uses, or

benefits that they do not have, and from engaging in false and misleading advertising.

Defendants and their co-conspirators further engaged in unconscionable conduct

prohibited by the state consumer protection statutes by knowingly and intentionally causing

cigarettes to be marketed and sold to the vulnerable population of children, in part by: (a) designing

their marketing campaigns with the intent that children be induced by defendants' advertisements to

smoke cigarettes; (b) engaging in other conduct with the purpose of causing children to smoke; (c)

concealing that their marketing was designed to encourage children to smoke and publicly claiming

that they discouraged children from smoking; and (d) concealing that their products are addictive

and harmful, and defrauding and misleading the public, including children, on these subjects.

Defendants' and their co-conspirators' knowing violations of their duty under the state

consumer protection statutes to refrain from engaging in unfair, unconscionable, deceptive, and

misleading trade practices had the tendency to deceive consumers. Consumers relied upon

defendants' and their co-conspirators' misleading and deceptive statements to their detriment by

purchasing and smoking cigarettes, or by refraining from trying to quit, or by failing to reduce their

consumption of cigarettes. Consumers suffered harm from smoking. Among other things,

consumers who smoke have experienced diminished overall health and an increased risk of disease

and illness, and endured smoking-related diseases, and injuries. Among those who suffered injury as

a result of defendants' and their co-conspirators' tortious and unlawful conduct are persons for whom

the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical,

or dental care and treatment under various federal programs, including those referred to in the third

numbered paragraph of Section V. A., above.

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3. Defendants' Liability for Breach of Manufacturers' Duties, Including Failure toWarn, Failure to Test, Sale of Defective and Unreasonably Dangerous Products(Strict Liability, Negligence, and Breach of Implied Warranty)

All states and the District of Columbia impose duties on manufacturers and suppliers

of products intended for human use and consumption, to exercise reasonable care and to refrain from

selling products that are defective or unreasonably dangerous when used as intended by foreseeable

users of the product. The Cigarette Companies' duties included the duty to test their products

adequately to determine that they were safe for their intended use; to design their products so that,

when used as intended, they were reasonably fit and safe for their foreseeable users; and to warn

foreseeable users of dangers related to their products' use. The Cigarette Companies have also

impliedly warranted that their products had been adequately tested and were not defective or

unreasonably dangerous when used as intended by foreseeable users.

In breach of their duty and implied warranty, the Cigarette Companies manufactured

and supplied products that were defective and unreasonably dangerous when used as intended by

foreseeable users of their product. The Cigarette Companies' products were defective, unreasonably

dangerous, and not fit for ordinary use when they left the possession of the Cigarette Companies.

The cigarettes manufactured by the Cigarette Companies were expected to, and did, reach the

consumer in substantially unchanged condition from that in which they were manufactured. The

Cigarette Companies have had superior knowledge and access to information about their products

and knew that consumers, particularly children whom they targeted, were unaware of the full range

of health risks caused by the companies' products, including addictiveness, the companies'

manipulation of their products, and the effects such manipulation would have on the users' health.

59

The Cigarette Companies manufactured and sold cigarettes that, when used as

intended, caused a large percentage of users to become addicted and to develop often fatal diseases,

including lung cancer, emphysema, stroke, and heart disease.

Rather than testing to determine whether their products were safe for their intended

use or how hazardous their cigarette products were, the Cigarette Companies, along with their co-

conspirators, deliberately designed a research program so as to avoid determining the full scope of

the dangers posed by their products, and acted to suppress and terminate research that threatened to

expose the health dangers and addictiveness of smoking.

The Cigarette Companies knew or should reasonably have known, in light of methods

available at the time of manufacture, about less hazardous, feasible alternative designs for their

products. Despite the feasibility of less hazardous alternative designs for their products, the

Cigarette Companies failed to research or adopt such less hazardous alternatives, and did instead fail

to reduce by a meaningful amount the harmful components of tobacco smoke in the cigarettes they

sold to the public; and misled the public by marketing so-called "low tar/low nicotine" cigarettes

that, defendants well knew, were not significantly lower in tar or nicotine not less hazardous as

smoked by defendants' customers.

Prior to the time that warnings were specifically required by the federal government

under the Public Health Cigarette Smoking Act of 1969 and despite knowledge by the Cigarette

Companies, many years before the addition of such warnings, that smoking posed serious health

hazards, the Cigarette Companies also failed to warn the foreseeable users of their products of the

dangers associated with the use of those products, including the extremely addictive nature of

nicotine and the high risk of disease and death. Instead of warning of such dangers, the Cigarette

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Companies, along with their co-conspirators, actively sought to stifle or contradict, and thereby,

neutralize any such warnings that might be issued by other entities and further intentionally directed

their marketing toward children and adolescents, who would be less likely to be aware of cigarettes'

dangerous and addictive properties or able to appreciate the risks of smoking. The presence of an

adequate warning, including a warning about the addictive properties of nicotine, would have limited

injuries caused by use of the Cigarette Companies' products.

The extreme dangers of disease and death caused by using the Cigarette Companies'

products, including the risk that consumers would become addicted and thus unable to stop smoking

before developing smoking-caused diseases, were known or reasonably should have been known to

the Cigarette Companies.

The true nature of the health risks of smoking cigarettes were beyond that reasonably

contemplated by the ordinary smoker, and in particular beyond that contemplated by the ordinary

beginning smoker who was not yet dependent upon nicotine. The full range of health risks of

smoking cigarettes was beyond that contemplated by children, whom defendants targeted with their

marketing. Moreover, the true risks of their products, as designed, engineered, and marketed by

defendants, were not open or obvious to consumers, particularly children.

Because defendants had available to them means to reduce the hazards of cigarette

smoking but chose not to develop or effectively implement them, the extreme danger of the design of

the cigarettes manufactured by the Cigarette Companies — including the danger of diseases arising

from their long term use — substantially outweighed the utility of the design.

The Cigarette Companies failed to use reasonable care in testing the safety of the

cigarettes manufactured by them, in designing the cigarettes manufactured by them, and, in providing

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instructions to users and, prior to the enactment of the Public Health Cigarette Smoking Act of

1969, in providing adequate warnings concerning the use of the cigarettes manufactured by them.

The Cigarette Companies' breach of their duties and implied warranty was done in

reckless and wanton disregard of the safety of cigarette smokers, and with actual knowledge of the

fact that the conduct of the Cigarette Companies would cause serious illness or death to large

numbers of cigarette smokers.

As a direct and proximate result of the breach of their duties and implied warranty by

the Cigarette Companies, individually and collectively, millions of users of the Cigarette Companies'

products have suffered and will continue to suffer physical harm. Among other things, smokers

experienced diminished overall health and an increased risk of disease and illness, and endured

smoking-related diseases, injuries, and death. Among those who suffered injury as a result of

Defendants' tortious conduct are persons for whom the United States has furnished or paid for, and

will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various

federal programs, including those referred to in the third numbered paragraph of Section V. A.,

above.

4. Defendants' Liability For Negligent Performance of Voluntary Undertakings

Defendants, along with their co-conspirators, deliberately and voluntarily made

statements to the public and to governmental agencies, public officials, and others who advance and

protect the public health, in which they made the following undertakings: (a) to accept an interest in

the public’s health as a basic and paramount responsibility; (b) to cooperate closely with those who

safeguard the public health; (c) to aid and assist the research effort into all phases of tobacco use and

health; (d) to continue research and all possible efforts until all the facts are known; and (e) to

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provide complete and authenticated information about cigarette smoking and health.

These statements were made to reassure the public of the safety of defendants'

products and their commitment to ensure that defendants' products were as safe as possible. In fact,

however, defendants had no intention of determining the safety of their products, advising their

customers of their safety, or ensuring that their products were as safe as possible. Defendants,

acting in concert, used these promises to gain credibility for their false and misleading statements,

and intended to create a false controversy about the relationship between smoking and disease.

By making such undertakings, defendants voluntarily assumed duties under the laws

of the states and the District of Columbia to render services for the protection of the public health.

Defendants owed and continue to owe these duties to the consumers and potential consumers of

cigarettes, including consumers and potential consumers for whom the United States is obligated or

authorized to pay costs of health care. Defendants also owed and continue to owe these duties to

governmental agencies, public officials, and others who advance and protect the public health.

Defendants intended consumers and government officials to rely upon them to fulfill

their publicly stated commitment, and recognized or should have recognized that truly independent

research and full disclosure consistent with that publicly stated commitment was necessary to protect

the health of the consumers and potential consumers of cigarettes. Defendants realized that their

conduct would affect the smoking behavior and health of millions of Americans.

Defendants have failed to exercise reasonable care in the performance of their

undertaking. Through such failure, they have breached and continue to breach their assumed duties.

Defendants' failure to exercise reasonable care has increased and continues to increase the risk of

physical harm to consumers and potential consumers of cigarettes, including those for whom the

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United States is obligated to pay costs of health care.

As a direct and proximate result of defendants’ failure to exercise reasonable care in

the performance of their undertaking, cigarette smokers have suffered and will continue to suffer

physical harm. Among other things, smokers have experienced diminished overall health and an

increased risk of disease and illness, and have endured smoking-related diseases, and injuries.

Among those who suffered injury as a result of defendants' tortious conduct are persons for whom

the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical,

or dental care and treatment under various federal programs, including those referred to in the third

numbered paragraph of Section V. A., above.

5. Defendants' Liability for Civil Conspiracy

At all times material to this action, defendants participated in a civil conspiracy

among themselves, and with other persons known and unknown, the purposes of which were, inter

alia: (a) to conceal knowledge of the harmful effects of cigarette smoking from the public, the

medical and scientific community, and governmental authorities; (b) to create an illusion of

conducting scientific research on cigarettes and cigarette smoking so as to mislead the public

concerning the health effects of smoking and the industry's knowledge of those health effects; (c) to

create an illusion of a genuine scientific controversy concerning whether smoking was harmful to

health, when no such genuine controversy actually existed; (d) to mislead the general public, the

medical and scientific community, and governmental authorities concerning the addictive properties

of nicotine; (e) to mislead the general public, the medical and scientific community, and

governmental bodies about the actual nicotine and tar delivery of supposedly "low tar" and "low

nicotine" cigarettes as they are actually smoked, in order to mislead smokers into believing that

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switching to such cigarettes was a reasonable alternative to smoking cessation; (f) to suppress

research into smoking and health; (g) to prevent development and marketing of less hazardous

products; (h) to market cigarettes to minors in order to insure a lucrative future market for

cigarettes; (i) to mislead the public concerning their efforts to market cigarettes to minors, and to

interfere with effective anti-youth smoking efforts; and (j) to maintain a market for their defective

and unreasonably dangerous products.

During the course of the conspiracy, the conspirators, acting in concert, engaged in

numerous concerted acts to further the purposes of the conspiracy, including but not limited to those

described in Section IV., above, and in the Appendix to this Complaint.

Each act of the conspiracy was ratified by the other co-conspirators, who acted as

each other's agents in carrying out the conspiracy.

As a direct and proximate result of the conduct of defendants, numerous smokers

have suffered illness or disease, with respect to whom the United States has furnished or paid for,

and will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various

federal programs.

Each defendant is jointly and severally liable for the torts of the other members of the

conspiracy which were committed in furtherance of the goals of the conspiracy.

B. Count Two: Liability under The Medicare Secondary Payer Provisions

The United States of America realleges and incorporates by reference in this Count

the allegations contained in Sections I. through IV., and Section V.A., above, and in the Appendix to

this Complaint, as if fully set forth herein.

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Each year, the United States, through the Health Care Financing Administration

("HCFA") of the United States Department of Health and Human Service ("HHS"), expends

extraordinary amounts, pursuant to the Medicare Program, 42 U.S.C., § 1395 et seq., paying for the

care and treatment of Medicare beneficiaries inflicted with and suffering from diseases, illnesses,

injuries, and diminished health caused by defendants' acts and omissions.

The Medicare Secondary Payer ("MSP") provisions of Subchapter 18 of the Social

Security Act, 42 U.S.C. § 1395y(b)(2), provide that the Medicare Program will not pay for the cost

of medical care if certain third parties -- such as liability insurance plans, including self-insured plans

-- have paid, or can reasonably be expected to pay promptly for those costs. 42 U.S.C.

§ 1395y(b)(2)(A)(i) and (ii). Where the Medicare Program does reimburse the beneficiary's health

care costs, it does so "conditioned on reimbursement" to HHS by the responsible third party. 42

U.S.C. § 1395y(b)(2)(B)(i).

The MSP provisions authorize the United States to bring a direct statutory action,

independent of the rights of the Medicare beneficiary, to recover payments that HCFA has made but

with respect to which such third parties are "required or responsible . . . to make payment." 42

U.S.C. § 1395y(b)(2)(B)(ii). In addition, the United States is also subrogated to the rights of the

beneficiary and may recover in any instance in which the beneficiary would be able to recover from

the party required or responsible to pay. 42 U.S.C. § 1395y(b)(2)(B)(iii).

As a result of the conduct described herein, defendants are required and responsible

to make payment for the health care costs of Medicare beneficiaries that were caused by defendants'

tortious and unlawful conduct, which costs have been and will be unlawfully shifted to the United

States.

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VI. DEFENDANTS' LIABILITY FOR VIOLATIONS OF THE RACKETEERINFLUENCED AND CORRUPT ORGANIZATIONS STATUTE

A. Count Three: Violation of Title 18, United States Code, Section 1962(c)

Conducting the Affairs of the EnterpriseThrough a Pattern of Racketeering Activity

The United States of America realleges and incorporates by reference in this Count

the allegations contained in Sections III and IV, above, and in the Appendix to this Complaint, as if

fully set forth herein.

From at least the early 1950's and continuing up to and including the date of the filing

of this complaint, in the District of Columbia and elsewhere, defendants,

PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,

LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS

COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR

TOBACCO RESEARCH, and TOBACCO INSTITUTE,

and others known and unknown, being persons employed by and associated with the Enterprise

described in Section VI. B., below, did unlawfully, knowingly, and intentionally conduct and

participate, directly and indirectly, in the conduct, management, and operation of the affairs of the

aforementioned Enterprise, which was engaged in, and the activities of which affected, interstate and

foreign commerce, through a pattern of racketeering activity consisting of numerous acts of

racketeering in the District of Columbia and elsewhere, indictable under 18 U.S.C. §§ 1341 (mail

fraud) and 1343 (wire fraud), including, but not limited to, the acts of racketeering alleged in the

Appendix to this Complaint which are incorporated by reference and realleged as if fully set forth

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herein, in violation of 18 U. S. C. § 1962 (c).

B. The Enterprise Manner and Means

From at least the early 1950s, and continuing up to and including the date of the filing

of this complaint, in the District of Columbia and elsewhere, defendants

PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,

LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS

COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR

TOBACCO RESEARCH, and TOBACCO INSTITUTE,

and others known and unknown, including agents and employees of defendants, collectively have

constituted an "enterprise," as that term is defined in 18 U.S.C. § 1961(4), that is, a group of

business entities and individuals associated in fact, which was engaged in, and the activities of which

affected, interstate commerce and foreign commerce. Each defendant participated in the operation

and management of the Enterprise.

The Enterprise functioned as a continuing unit for more than 45 years to achieve

shared goals through unlawful means including the following: (1) to preserve and enhance the

market for cigarettes and defendants' own profits, regardless of the truth, the law, or the health

consequences to the American people; (2) to deceive consumers into starting and continuing to

smoke by maintaining that there was an open question as to whether smoking causes disease, despite

the fact that defendants knew otherwise; (3) to deceive consumers into starting and continuing to

smoke by undertaking an obligation to do everything in its power, including fund independent

research, in order to determine if smoking causes cancer or other diseases, while concealing and

suppressing relevant research and funding biased or irrelevant research; (4) to deceive consumers

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into becoming or staying addicted to cigarettes by maintaining that nicotine is not addictive, despite

the fact that defendants knew that nicotine is addictive; (5) to deceive consumers into becoming or

staying addicted to cigarettes by manipulating the design of cigarettes and the delivery of nicotine to

smokers, while at the same time denying that they engaged in such manipulation; and (6) to deceive

consumers, particularly parents and children, by claiming that they did not market to children, while

engaging in marketing and advertising with the intent of addicting children into becoming lifetime

smokers.

The Enterprise came into existence not later than December 15, 1953, at the above-

described meeting at the Plaza Hotel in New York, New York. The participants agreed at that

meeting to conduct a false and misleading public relations and advertising campaign to deceive

consumers and others about the health effects of cigarettes in order to protect the profits of

Cigarette Companies. In furtherance of the Enterprise, the participants agreed to form TIRC (later

CTR), a New York non-profit corporation that was falsely held out to the public as an independent

research organization that would consider whether smoking caused disease. In reality, TIRC was

created as the centerpiece of a public relations campaign to protect the cigarette market from the

perceived threat posed by adverse medical reports.

The Enterprise has pursued a course of conduct of deceit and misrepresentation and

conspiracy to defraud the public, to withhold from the public facts material to the decision to

purchase and use tobacco products, to promote and maintain sales of tobacco products, and the

profits derived therefrom, as well as to shield themselves from public, judicial, and governmental

scrutiny. The fraudulent, misleading and unlawful efforts of the Enterprise have continued from its

inception to the present and threaten to continue into the future.

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The participants in this Enterprise have repeatedly utilized advertisements and

promotions, and have made numerous other public statements through the mails and in broadcasts

and other media, Congressional hearings, and other public appearances as part of a concerted and

coordinated campaign to reaffirm their January 1954 promise to put people's health before every

other consideration in their business, and to support and reveal unbiased and trustworthy research to

answer questions about smoking and health. Defendants and their co-conspirators used the

Enterprise to make these material fraudulent representations to induce public acceptance of their

representations, to avoid civil liability, and to conceal their efforts to misrepresent, suppress, distort,

and confuse the facts about the health dangers of tobacco products, including nicotine addiction.

Behind the shield of its public disinformation campaign and the false claims that

TIRC/CTR would conduct unbiased research and publicly reveal all results thereof, the Enterprise

has repeatedly concealed, suppressed, and/or misrepresented the material facts concerning that

research. The Enterprise, through CTR and other entities supported by defendants, suppressed

negative health and addiction research results from the public. In some cases, members of the

Enterprise shut down research before final data could be obtained and reported. The participants in

the Enterprise also funded research studies designed to buttress defendants' knowingly fraudulent

claims that the causal link between smoking and disease remained an "open question."

The participants in the Enterprise have not disclosed, and have denied, contrary to

fact, that the Cigarette Companies manipulate and control the content, delivery, and potency of

nicotine in their products to create and sustain consumers' addiction to tobacco products.

The Enterprise has further suppressed the development, testing, and marketing of less

hazardous cigarettes, while fraudulently maintaining that cigarettes are safe and that there are no

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safer alternatives to their products.

The formation, existence, and actions of the Enterprise were essential to the success

of the campaign of deceit, concealment, and misinformation. The constituent members of the

Enterprise were aware that, unless they agreed to act and acted as an enterprise, their sales of

tobacco products would substantially decrease, and accordingly, the profits of the Cigarette

Companies would substantially diminish. The participants were also aware that, if the truth about

the health effects of smoking, the addictiveness of nicotine, and the Cigarette Companies' targeting

of children became known, profits would have substantially decreased, and the future of the cigarette

industry would have been threatened.

At all relevant times, the Enterprise has existed separate and apart from defendants'

racketeering acts and their conspiracy to commit such acts. The Enterprise has an ascertainable

structure and purpose beyond the scope and commission of defendants' predicate acts. It has a

consensual decision making structure that is used to coordinate strategy, manipulate scientific data,

suppress the truth about the consequences of smoking, and otherwise further defendants' fraudulent

scheme.

The Enterprise is an ongoing organization whose constituent elements function as a

continuing unit in maximizing the sales of the products of all of the Cigarette Companies, misleading

the public, the Congress, federal agencies, and the courts as to the health hazards of cigarettes,

concealing and suppressing the truth concerning the addictive properties of nicotine and of the

Cigarette Companies' control of nicotine delivery, marketing to children, and carrying out other

elements of defendants' scheme. The Enterprise continues actively to disguise the nature of

defendants' wrongdoing and to conceal defendants' participation in the conduct of the Enterprise in

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order to avoid and/or minimize their exposure to criminal and civil penalties and damages.

In order to further the conspiracy and as part of their Enterprise that was engaged in

a pattern of racketeering activity, defendants formed the TIRC (later CTR) and the Tobacco

Institute. Each of these organizations furthered the goals of the Enterprise in numerous ways:

C They served as a principal channel of communication among defendants to

ensure that the companies continued to espouse the party line and to react to

new threats to the industry.

C They served to provide a uniform voice to propagate defendants' and their co-

conspirators' false and misleading material statements about smoking and

health, defendants' commitment to research, and other issues.

C They provided an "independent" front for defendants' activities. CTR, for

example, was used by defendants to claim falsely that they were funding

independent research into smoking and health. Similarly, the Cigarette

Companies were able to market to youth and to deny doing so under the

cover of TI's print campaign which purported to discourage children from

smoking.

C They were mechanisms for enforcing the conspiracy and ensuring that all

defendants continued to participate in the Enterprise. Defendants and/or their

attorneys were in constant contact with each other through CTR and TI. The

numerous committees and boards that exercised control over TI and CTR

provided regular opportunities for defendants' agents to meet and to ensure

that defendants were continuing to act in concert.

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At all times, CTR and TI were controlled by the Cigarette Companies and their

agents and employees. Defendants controlled each organization directly and through the web of

committees made up of representatives of the Cigarette Companies and outside counsel. Over time,

defendants' in-house and outside counsel took on a greater role in controlling the activities of

TIRC/CTR and TI. Although CTR and TI have been or will be dissolved, on information and belief,

the functions they have served continue to be served by the Companies' agents and employees.

TIRC/CTR's Board of Directors was comprised of the Presidents of the member

Cigarette Companies. TIRC/CTR was funded by the member companies, and the TIRC/CTR Board

of Directors approved the annual budget of the organization. The Board handled administrative

matters and was responsible for ensuring the necessary funds were available to maintain TIRC/CTR.

TIRC/CTR also had a Scientific Director and a scientific staff. The Scientific Director and the

TIRC/CTR scientific staff were selected by representatives of defendants .

TIRC/CTR's Industry Technical Committee ("ITC"), made up of the Research

Directors of the various member companies, and representatives of Hill & Knowlton, a public

relations firm that at various times represented both TIRC/CTR and TI, selected the first members of

the SAB. Subsequent appointments were approved by TIRC/CTR's Chairman, a position that was

usually filled by a retired tobacco company president or general counsel.

Defendants, through their attorneys and other agents, took an active role in

controlling TIRC/CTR's research and other priorities. The Research Liaison Committee ("RLC"),

formed in 1974, approved projects and monitored all phases of TIRC/CTR, including approving

grants. The RLC had grant approval authority. The Cigarette Companies' in-house attorneys

operated through the "Committee of Counsel," a group that included the General Counsel of each

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Cigarette Company, along with outside counsel who represented the Cigarette Companies. The

Committee of Counsel also reviewed and controlled TIRC/CTR's research priorities. Outside

counsel for the Cigarette Companies even administered some of TIRC/CTR's research funds through

Special Projects and Special Accounts, in order to funnel money to the development of expert

witnesses.

The Tobacco Institute (TI) is or was a non-profit organization formed in January

1958 whose member companies were manufacturers of tobacco products, including the five largest

Cigarette Companies. TI was formed, at least in part, in response to a growing resentment by some

SAB members of the public relations functions of the SAB and TIRC/CTR.

TI served as defendants' propaganda arm and was controlled by defendants. As part

of the Enterprise, TI served to disseminate defendants' "party line" on issues such as smoking and

health, regardless of what defendants knew.

TI was run by a variety of Committees, which were made up of representatives from

the Cigarette Companies, each of whom initially had two members on TI's Executive Committee.

The Executive Committee had the "final voice on TI matters" and TI's statements. TI's Management

Committee met six to eight times per year to direct its activities, and its Communications Committee

cleared TI's advertisements. Through these Committees, defendants, through their agents and

attorneys, controlled TI and set policy, including the misleading and fraudulent statements about

material matters made by TI. Over time, this structure changed somewhat, but defendants always

maintained control over TI's activities.

The Cigarette Companies funded TI as well. The member companies paid dues to TI

"based on a set membership fee and then an additional fee was added based on the number of

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cigarettes the member company had manufactured in the previous year."

The Cigarette Companies also exercised control over TI through the Committee of

Counsel. The Committee of Counsel assisted TI in setting strategy, preparing witnesses on smoking

and health issues, briefings, reviewing press releases, advertisements, and other public statements,

and "follow-up" activities.

TI's stated goal was to bring "about a greater awareness that the cigarette

controversy is not a closed question" -- i.e., to provide misleading information on the issue of

smoking and health. TI took an active role in designing, writing, and seeking the publication of

advertisements for defendants' products and prepared literally hundreds of advertisements from 1958

to 1998 that advanced defendants' primary position that "the question of smoking and health is still a

question." TI regularly issued public statements questioning or disputing statements from health

organizations that smoking caused disease and reiterating defendants' positions on other issues.

TI produced scores of witnesses for testimony in Congress, the courts, and state

legislatures to advocate the false and misleading industry line — often without noting sponsorship by

the Cigarette Companies or TI. TI also sponsored radio and TV campaigns. TI lobbied on behalf of

the Cigarette Companies to prevent the release of public information about the effect of cigarettes on

public health. TI also furthered the Enterprise by coordinating the Cigarette Companies' position

with those of tobacco companies throughout the world.

Despite the fact that TI was formed in order to distance TIRC/CTR from defendants'

public relations activities, after TI was created, TIRC/CTR continued its public relations functions,

and continued to retain public relations counsel.

Although CTR purported to be "independent," TI and TIRC/CTR often worked

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together to advance defendants' positions. TI used TIRC/CTR's research material to further the goal

of maintaining defendants' "open controversy" position.

In furtherance of their common goals, including preserving, protecting, and enhancing

the market for cigarettes, the Cigarette Companies jointly created and funded TIRC/CTR and TI.

By the Cigarette Companies' frequent and continuous interaction as controlling participants on the

boards, committees, and other structures within TIRC/CTR and TI, defendants and others have

constituted an association-in-fact enterprise as defined in 18 U.S.C. § 1961(4).

On information and belief, by frequent and continuous communications among, and

coordinated activities of, defendants and their agents that continue to the present day, defendants

and others continue to constitute an association-in-fact enterprise as defined in 18 U.S.C. § 1961(4).

C. Count Four: Violation of Title 18, United States Code, Section 1962(d); Conspiracy toViolate Title 18, United States Code, Section 1962(c)

Conspiracy to Conduct the Affairs of the Enterprise Through a Pattern of Racketeering Activity

The United States of America realleges and incorporates by reference in this Count

the allegations contained in Sections I. through IV., and in Section VI. B., above, and in the

Appendix to this Complaint, as if fully set forth herein.

From at least the early 1950's up to and including the date of the filing of this

Complaint, in the District of Columbia and elsewhere, defendants,

PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,

LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS

COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR

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TOBACCO RESEARCH, and TOBACCO INSTITUTE,

and others known and unknown, being persons employed by and associated with the Enterprise

described in Section VI. B., above, did unlawfully, knowingly and intentionally combine, conspire,

confederate, and agree together with each other, and with others whose names are both known and

unknown, to conduct and participate, directly and indirectly, in the conduct of the affairs of the

aforementioned Enterprise, which was engaged in, and the activities of which affected, interstate and

foreign commerce, through a pattern of racketeering activity consisting of multiple acts indictable

under 18 U.S.C. §§ 1341 and 1343, in violation of 18 U.S.C. § 1962(d).

The Enterprise Manner and Means: Section VI. B, above, is incorporated by

reference and realleged as if fully set forth herein.

Each defendant agreed that at least two acts of racketeering activity would be

committed by a member of the conspiracy in furtherance of the conduct of the Enterprise. It was

part of the conspiracy that defendants and their co-conspirators would commit numerous acts of

racketeering activity in the conduct of the affairs of the Enterprise, including, but not limited to, the

acts of racketeering set forth in the Appendix, in the District of Columbia and elsewhere.

D. THE PATTERN OF RACKETEERING ACTIVITY

Racketeering Acts Related to The Mail And Wire Fraud Scheme

Racketeering Acts 1 through 116: The following sub-paragraphs a. through n. are

realleged as a part of each of Racketeering Acts Nos. 1 through 116 relating to mail fraud and wire

fraud set forth in the Appendix to the Complaint.

a. From at least as early as December 1953, and continuing until the time of

filing of this complaint, in the District of Columbia and elsewhere, defendants and others known and

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unknown did knowingly and intentionally devise and intend to devise a scheme and artifice to

defraud, and obtain money and property from, members of the public by means of material false and

fraudulent pretenses, representations, and promises, and omissions of material facts, knowing that

the pretenses, representations, and promises, were false when made.

b. It was part of said scheme and artifice that the Cigarette Companies would

and did sell products for purchase by smokers that were represented to pose no proven substantial

risk of disease, and that were not addictive, and that smoking was a matter of free choice by adults,

when in fact, cigarette smoking posed substantial health risks, that nicotine in cigarettes is highly

addictive, and that the Cigarette Companies had targeted children as "replacement smokers" for

adult smokers who either reduced or ceased smoking or had died.

c. It was further part of said scheme and artifice that defendants and their

co-conspirators would and did maintain sales and profits of the Cigarette Companies, by concealing,

and suppressing material information regarding the health consequences associated with smoking,

including that cigarette smoking posed substantial health risks, that nicotine in cigarettes is highly

addictive, that they had the ability to manipulate and manipulated nicotine delivery, and that the

Cigarette Companies had targeted children as "replacement smokers" for adult smokers who either

reduced or ceased smoking or had died.

d. It was further part of said scheme and artifice that, in order to conceal the

health risks of cigarette smoking and the addictiveness of nicotine, defendants and their

co-conspirators would and did make false representations and misleading statements in national

publications, would and did falsely represent that defendants would fund and conduct objective,

scientific research, and disclose the results of such research, to resolve concerns about

78

tobacco-related diseases, would and did falsely represent that defendants did not target children for

sales of cigarettes, would and did suppress and destroy documents to hide adverse research results,

would and did misrepresent and fail to disclose their ability to manipulate and the manipulation of

nicotine delivery and the addictive qualities of cigarettes, would and did conceal the availability of

less hazardous and less addictive cigarettes, and would and did misrepresent their actions to

government personnel and others and in judicial proceedings.

e. It was further part of said scheme and artifice that defendants and their

co-conspirators would seek to impair, impede, and defeat government authorities' ability to

understand the actual risks of cigarette smoking and the addictiveness of nicotine, and to impair,

impede, and defeat governmental efforts to regulate and control the manufacture and distribution of

cigarettes, and to impair, impede, and defeat parties in litigation from learning the adverse health

effects and addictiveness of cigarette smoking, in that defendants and their co-conspirators would

and did attempt to cover up their knowledge of the adverse health risks of smoking, the

addictiveness of nicotine, and their efforts to recruit children as smokers, and would and did

misrepresent that adverse health effects of smoking and addictiveness were unknown or unproven;

and would and did attempt to prevent to the public, Congress, courts and government officials from

uncovering those activities.

f. It was further part of said scheme and artifice that defendants'

communications directed toward government officials and courts would be and were designed to

preserve and increase the market for cigarettes while concealing the deleterious health effects caused

by smoking cigarettes. Examples of such communications include defendants' communications with

government agencies, and communications with congressional subcommittees, members, and staff,

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as well as their communications among themselves regarding what should not be disclosed to

government agencies and to courts and Congress.

g. It was further a part of said scheme and artifice that defendants communicated

to the public nationwide in newspapers, magazines, and other periodicals that were distributed

through the mails, as well as through the broadcast media, to deceive the public.

h. It was further part of said scheme and artifice that defendants would cause

assurances and guarantees that the Cigarette Companies were seeking answers to public health issues

to be disseminated by mail and by interstate wire transmissions.

i. It was further part of said scheme and artifice that defendants would take and

receive and cause to be taken and received from the mails communications concerning research

relating to the health effects of smoking.

j. It was further part of said scheme and artifice that defendants and their

co-conspirators would mail and otherwise distribute press releases and other public statements

addressing public health concerns and commenting on particular research issues.

k. It was a further part of said scheme and artifice that defendants and their

co-conspirators would and did misrepresent, conceal, and hide and cause to be misrepresented,

concealed, and hidden, the purpose of, and acts done in furtherance of, the scheme to defraud.

l. It was a further part of said scheme and artifice, and in furtherance thereof, that

defendants would and did communicate with each other and with their co-conspirators and others, in

person, by mail, and by telephone and other interstate and foreign wire facilities, regarding health

effects of smoking, health research and research into the effects of nicotine, and ways to suppress

such information, and regarding ways to identify and target children for the sale of cigarettes.

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m. For the purpose of executing and attempting to execute the scheme and artifice

described herein, defendants and their co-conspirators would and did: knowingly place and cause to

be placed in any post office or authorized depository for mail matter, matters and things to be sent

and delivered by the United States Postal Service (and its predecessor, the United States Post Office

Department); took and received therefrom such matters and things; and knowingly caused to be

delivered by mail according to the direction thereon, and at the place at which it is directed to be

delivered by the person to whom it is addressed, any such matter and thing, in violation of 18 U.S.C.

§ 1341, including, but not limited to, the instances set forth in Racketeering Acts 1 through 102 of the

Appendix to the Complaint.

n. For purposes of executing and attempting to execute that scheme and artifice,

defendants and their co-conspirators would and did knowingly transmit and cause to be transmitted in

interstate and foreign commerce by means of wire, radio and television communication writings,

signs, signals, pictures and sounds (collectively "transmissions") in violation of 18 U.S.C. § 1343,

including, but not limited to, the transmissions set forth in Racketeering Acts 103 through 116 of the

Appendix to the Complaint.

Racketeering Acts Nos. 1 through 116 appearing in the Appendix to this Complaint

are realleged and incorporated by reference into the Complaint as if fully set forth herein.

E. Summary of the Racketeering Acts Charged Against Each Defendant

Set forth below is a chart indicating those Racketeering Acts, in which each defendant

that is named in this Complaint in its individual capacity, personally participated. Each of these Acts

was committed pursuant to and in furtherance of the above-described Enterprise, and such Acts

include false and misleading statements, as well as other uses of the mails and wire transmissions, to

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further and execute defendants' scheme and artifice to defraud. The Racketeering Acts are set forth in

the attached Appendix, which is incorporated by reference and realleged as if fully set forth herein:

DEFENDANT RACKETEERING ACTS VIOLATIONS

PHILIP MORRIS 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 16, 17, 18, 19, 18 USC § 134120, 21, 22, 23, 24, 26, 27, 28, 29, 31, 33, 18 USC § 134334, 35, 38, 40, 41, 42, 43, 44, 46, 47, 48,49, 56, 58, 59, 66, 67, 70, 73, 77, 79, 81,87, 88, 91, 93, 98, 100, 105, 108, 109, 114

REYNOLDS 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 18 USC § 134122, 23, 24, 26, 27, 28, 29, 31, 33, 34, 35, 18 USC § 134336, 38, 39, 42, 43, 44, 46, 49, 56, 61, 62,64, 65, 66, 67, 68, 70, 73, 76, 77, 79, 81,82, 83, 84, 85, 86, 87, 88, 89, 91, 93, 94,96, 97, 98, 99, 102, 104, 107, 110

BROWN & WILLIAMSON 1, 2, 3, 5, 6, 7, 8, 10, 11, 12, 13, 17, 18, 21, 18 USC § 134122, 23, 24, 27, 28, 29, 30, 31, 32, 33, 34, 18 USC § 134335, 38, 42, 43, 44, 45, 46, 49, 50, 51, 52,53, 54, 55, 56, 57, 60, 63, 66, 67, 70, 73,77, 79, 81, 87, 88, 91, 93, 98, 103, 106,115, 116

LORILLARD 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 22, 18 USC § 134123, 24, 27, 28, 29, 31, 33, 34, 35, 37, 38, 18 USC § 134342, 43, 44, 46, 49, 56, 66, 67, 70, 73, 77,79, 81, 87, 88, 91, 93, 98, 104, 111

LIGGETT 13, 17, 22, 28, 31, 38, 44, 66, 67, 70, 73, 18 USC § 134177, 88, 112 18 USC § 1343

AMERICAN 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 22, 18 USC § 134123, 24, 27, 29, 31, 33, 34, 35, 38, 42, 43, 18 USC § 134344, 46, 49, 56, 66, 67, 70, 73, 77, 79, 81,87, 88, 90, 91, 93, 98, 113

PHILIP MORRIS 69, 71, 72, 74, 75, 78, 80, 92, 95 18 USC § 1341COMPANIES 18 USC § 1343

BAT PLC 55, 59, 101, 108 18 USC § 1341(BAT INDUSTRIES) 18 USC § 1343

DEFENDANT RACKETEERING ACTS VIOLATIONS

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BAT INVESTMENTS 11, 30, 50, 51, 53, 54, 57, 60, 63, 103, 106 18 USC § 1341(BAT Co.) 18 USC § 1343

COUNCIL FOR 2, 9, 13, 14, 15, 17, 22, 25, 31, 38, 44, 66, 18 USC § 1341TOBACCO RESEARCH / 67, 70, 73, 77, 88, 98 18 USC § 1343TOBACCO INDUSTRYRESEARCHCOMMITTEE

TOBACCO INSTITUTE 3, 5, 6, 7, 8, 10, 12, 18, 21, 23, 24, 27, 29, 18 USC § 1341

91, 9333, 34, 35, 42, 43, 46, 49, 56, 79, 81, 87, 18 USC § 1343

F. Equitable Relief Is Necessary to Prevent and Restrain Defendants' Unlawful Conduct inthe Future

Defendants' affirmative and intentional acts of fraudulent concealment, suppression,

and denial of the facts as alleged above has continued unabated over a span of many decades.

Defendants have maintained a unified scheme to thwart public awareness of adverse scientific and

medical information concerning the health risks of cigarette smoking by suppressing and subverting

medical and scientific research. They have concealed and denied the addictive properties of nicotine

and the Cigarette Companies' manipulation of the levels of nicotine in their products. They have

misrepresented the tobacco industry's targeting of youth smokers and their endeavors to exploit the

addictive properties of nicotine to maintain a market for cigarettes -- all through an uninterrupted

pattern of fraudulent and deceitful conduct aimed at maintaining a market for their products and

increasing industry profits at the expense of the smokers they endeavored to deceive.

The pattern of defendants' conduct reflects an unwillingness to concede, and

affirmative efforts to conceal from the public, from courts, and from regulatory bodies, pertinent and

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properly available information concerning the dangers of their products. After a span of more than

forty-five years of deception and fraud, it would be unreasonable to believe that defendants will

voluntarily cease their unlawful conduct, or that their pattern of racketeering activity will cease

without intervention by this Court.

Unless restrained, defendants will continue their attempts to keep internal information

from public disclosure. They will refuse to admit, and continue to conceal, the fact that smoking

cigarettes causes disease and kills and that the nicotine in their products is addictive. Affirmative

relief is required to ensure that defendants fulfill their duty to disclose non-public information over

which defendants have had exclusive control, and which is crucial to the consuming public in making

informed purchasing decisions. Equitable relief is necessary to ensure an end to defendants' continued

efforts to confuse and mislead the public concerning the health consequences of smoking and the

addictive nature of nicotine, and to end their deceptive campaign to induce children and minors to

become addicted and subject to a high risk of disease.

Defendants' violations of 18 U.S.C. § 1962, and their continuing pattern of

racketeering acts will continue in connection with the affairs of the Enterprise unless this Court

implements the relief requested below.

VII. PRAYER FOR RELIEF

WHEREFORE, the United States of America prays for relief and judgment against all

defendants, jointly and severally, as follows:

A. Remedies at Law:

Awarding damages, along with pre-judgment and post-judgment interest as provided by law,

to the United States of America, pursuant to Counts One and Two, for defendants' tortious and

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wrongful acts, as alleged above, as follows:

1. Under Count One, awarding the United States money damages for an amount that is

sufficient to provide restitution and repay the United States for the sums it has spent or will spend,

constituting, as provided by law, the reasonable value of hospital, medical, surgical, and dental care

and treatment furnished and to be furnished, paid for and to be paid for, by the United States to or on

behalf of beneficiaries of various federal programs including those referred to in the third numbered

paragraph of Section V. A., above, as a result of the wrongful conduct of defendants, which amount

is to be determined at trial by a jury. The United States has suffered and in the future will continue to

incur substantial monetary damages as a result of this same conduct. An actual, justiciable

controversy exists between plaintiff and defendants regarding the ultimate legal and financial

responsibility for these future medical expenditures.

2. Under Count Two, awarding the United States money damages for an amount that is

sufficient to provide restitution and repay the United States for the sums it has spent or will spend,

past and present, pursuant to the United States' right, independent of the rights of Medicare

beneficiaries, to recover compensation for the costs that the United States has paid, pursuant to the

Medicare Program, to reimburse health care providers for treating Medicare beneficiaries suffering

from diseases and other health problems as a result of defendants' wrongful and unlawful conduct,

which payments HCFA has made but with respect to which defendants are "required or responsible

. . . to make payment," as provided by law (42 U.S.C. § 1395y(b)(2)(B)(ii) & (iii)), which amount is

to be determined at trial by a jury. The United States has suffered and in the future will continue to

incur substantial monetary damages as a result of this same conduct. An actual, justiciable

controversy exists between plaintiff and defendants regarding the ultimate legal and financial

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responsibility for these future medical expenditures.

3. Awarding the United States the costs of this suit, together with such other and further

relief as may be necessary and appropriate.

B. Equitable Remedies:

Pursuant to the provisions of 18 U.S.C. § 1964, that this Court issue an Order and Judgment,

jointly and severally, against defendants, providing the following relief:

1. That this Court order that all of the defendants who are found to have violated 18

U.S.C. § 1962, disgorge all proceeds derived from any violation of 18 U.S.C. § 1962.

2. That this Court issue a permanent injunction that will do the following:

a. Prohibit each defendant and its successors, officers, employees, and all persons

acting in concert with each defendant, from committing any act of racketeering, as defined in 18

U.S.C. § 1961(1), and from associating directly or indirectly, with any other person known to them to

be engaged in such acts of racketeering or with any person in concert or participation with them.

b. Enjoin and restrain each defendant and all other persons in concert with each

defendant from participating in any way, directly or indirectly, in the management and/or control of

any of the affairs of CTR and TI, or, if either CTR or TI has been or becomes dissolved, any

successor entities of CTR and TI, or other entity affiliated with CTR and TI, known to them to be

engaged in acts of racketeering, and from having any dealings about any matter that relates directly or

indirectly to the management and/or control of CTR and TI or any successor or affiliated entities

known to them to be engaged in acts of racketeering.

c. Enjoin each defendant and persons in concert with each defendant from making

false, misleading or deceptive statements or representations concerning cigarettes.

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d. Prohibit each defendant and its agents from engaging in any public relations

endeavor that misrepresents, or suppresses information concerning, the health risks associated with

cigarette smoking or the addictive nature of nicotine, and from associating with any other persons for

the purpose of engaging in such conduct.

e. Order each defendant to disclose, disseminate, and make available to the

Department of Justice and such public health and regulatory authorities as the Court may select, all

documents relating to research previously conducted directly or indirectly by themselves and their

respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert

with them, that relate to the health consequences of cigarette smoking and nicotine addiction, and the

ability to develop less hazardous cigarettes.

f. Order each defendant to fund, but have no part of or influence over the control

of or decision making relating to, a legitimate and sustained corrective public education campaign,

administered and controlled by an independent third party, relating to the public health issues of

cigarette smoking and nicotine addiction.

g. Order each defendant to disclose, disseminate, and make available to the

Department of Justice and such public health and regulatory authorities as the Court may select, all

documents relating to marketing or advertising campaigns that target and/or encourage children to

purchase and consume cigarettes; enjoin each defendant from engaging in any such campaigns in the

future; and order each defendant to provide mechanisms to ensure compliance.

h. Order each defendant to make corrective statements regarding the health risks

of cigarette smoking and the addictive properties of nicotine in future advertising, marketing, and

promotion of their tobacco products.

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i. Order each defendant to fund, but have no part of or influence over the control

of or decision making relating to, sustained cessation programs including the provision of medically

approved nicotine replacement therapy for dependent smokers.

j. Order each defendant to fund, but have no part of or influence over the control

of or decision making relating to, a sustained educational campaign devoted to the prevention of

smoking by children.

3. That this Court award the United States the costs of this suit, together with such other

and further relief as may be necessary and appropriate to prevent and restrain further violations of 18

U.S.C. § 1962, and to end the ongoing wrongful conduct of defendants.

C. DECLARATORY RELIEF:

Pursuant to 28 U.S.C. § 2201, that this Court declare that defendants are liable, jointly and

severally, for future costs of hospital, medical, surgical, or dental care and treatment (including

prostheses and medical appliances) to be furnished, or to paid for, by the United States resulting from

the past tortious and wrongful conduct of defendants.

VIII. DEMAND FOR JURY TRIAL

The United States of America demands a trial by jury on all issues so triable under

Counts One and Two in this action.

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DATED: September 22, 1999

David W. Ogden Wilma A. Lewis Acting Assistant Attorney General United States Attorney Civil Division for the District of Columbia D.C. Bar No. 555 Fourth Street, Room 5806

William B. Schultz J. Patrick Glynn Deputy Assistant Attorney General Director D.C. Bar No. 218990 D.C. Bar No. 219162

Thomas J. Perrelli Sharon Y. Eubanks Deputy Assistant Attorney General Deputy Director D.C. Bar No. 438929 D.C. Bar No. 420147

United States Department of Justice Tobacco Litigation TeamCivil Division Torts Branch, Civil Division950 Pennsylvania Avenue, N.W. 950 Pennsylvania Avenue, N.W.Washington, D.C. 20530-0001 Washington, D.C. 20530-0001

Washington, D.C. 20001

United States Department of Justice

202/616-4185